Market Updates] 2026 Quarter 3

Daniel Lee

20 hours ago

11 min read

Three months ago, I flagged a shaky Iran deal, a hawkish new Fed chairman and an AI trade running on sentiment.

All three moved this quarter: the Iran deal collapsed, central banks started raising rates, and the leaders of the AI industry asked to slow down.

In this article, I’ll do a rundown on

What has happened during the third quarter of 2026
Making Sense of Market Price Actions
Moving Forward: What Should We Do

This is going to be a long ass update, so buckle up.

You can jump to the different sections that interest you, but if this is the one article you read per quarter to bring yourself up to speed on the markets, read through everything.

1. What Has Happened During 3Q 2026

1a. Geopolitical Updates

The Iran Conflict: from a signed deal to a second chokepoint

July: The deal breaks

Iran attacked merchant ships in the strait on 6 and 7 July, and on 8 July President Trump declared the ceasefire over. Strikes resumed, Iran declared the strait closed and the US reinstated its naval blockade on 14 July. The Iran backed Houthis in Yemen also declared a blockade on Saudi vessels.

August: Deal hopes, then the deadline passes

Talk of an imminent deal sent oil lower and US stocks to record highs in early August. But the 60-day window under the June memorandum expired on 17 August with no final deal, and Gulf oil exports fell to nearly half their prewar level, down from roughly 75% at the end of June.

September: A second chokepoint

The Houthis seized positions near Bab el-Mandeb, the Red Sea exit Saudi Arabia relies on to bypass Hormuz, and Saudi Arabia shut its bypass pipeline on 11 September after drone attacks. At the UN in late September, Iran offered to reopen the strait within seven days if its conditions are met, including lifting the US blockade and releasing frozen assets.

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US and China: Trump and Xi meet in Washington

Xi Jinping’s state visit to Washington on 23 and 24 September was the quarter’s other big geopolitical event. Expectations going in were low, and they were met.

Issue	What came out of the meeting	Where it stands
Tariffs	Trade truce extended by two months, to 10 January 2027	No new tariff cuts; the hard questions move to the next round
Rare earths	No new supply guarantee	US officials say deliveries are falling short
AI and chips	AI cooperation and safety discussed	No change to export rules on advanced chips
Taiwan	Xi urged Washington to handle it with caution	No reported change in US policy

With US midterm elections approaching, neither side wants a new trade fight. Both leaders seem content to manage the relationship rather than resolve it.

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What This Means For Us

Energy is still the main channel. With Hormuz and the Red Sea route both under threat, energy costs stay high and keep pressure on interest rates (section 1b). Asia is more exposed, as most oil through Hormuz goes to Asian buyers.
The US and China truce buys time, not a solution. The two-month extension sets a new deadline on 10 January 2027. Expect trade headlines to return as it approaches.
Chips and Taiwan remain the fault line for Asian equities. Export rules on advanced chips did not change and Taiwan was left unresolved. With Taiwan and Korea chipmakers a large part of Asia ex Japan indices, this risk stays in the price.
Watch actions, not headlines. For Iran, that means tankers moving freely, not “deal is close” announcements. For China, it means actual tariff cuts and rare earth shipments before 10 January.

1b. Rate Hikes Are Back

Last quarter, I expected the Fed under Kevin Warsh to stay hawkish. This quarter it hiked, and it was not alone.

Within about a week in September, the European Central Bank, the Federal Reserve and the Bank of Japan all raised rates, a rare moment of the world’s largest central banks moving together. The Bank of England stopped just short of joining them.

Central bank	Date	Decision	Key detail
MAS (Singapore)	27 Jul	Tightened	Second tightening this year; most economists expected no change.
ECB (Eurozone)	10 Sep	+0.25% to 2.50%	Second hike of 2026
Federal Reserve (US)	16 Sep	+0.25% to 3.75% to 4.00%	First hike since July 2023; unanimous vote
Bank of England (UK)	17 Sep	Held at 3.75%	Sees inflation above 4% in early 2027
Bank of Japan	18 Sep	+0.25% to 1.25%	Highest since 1995

Why now? Central bankers are less worried about oil itself than about what economists call second-round effects: higher fuel costs spreading into wages and everyday prices until inflation feeds itself and becomes much harder to bring down.

Here is the part I find most interesting. The market does not seem that worried about rate hikes anymore. What it reacts to, violently, is uncertainty about them. Three moments this quarter make the point:

Date	What the Fed did	Was it clear?	Stock market reaction
29 Jul	Held rates, but 3 officials voted to hike; no guidance on the next move	No. A divided committee and no signal.	Dow fell 2.2%; S&P 500 fell 1.5%
28 Aug	Warsh at Jackson Hole: the Fed has “work to do” on inflation.	Yes, hawkish but clear.	Stocks climbed
16 Sep	Hiked 0.25% and signalled another.	Yes, over 90% priced in beforehand.	Stocks slipped only modestly

Notice the pattern: the worst day came when nothing changed, but the direction became unclear, while the actual hike was close to a non-event.

The chart shows the same thing across the year: each time yields jumped (the shaded boxes), stocks paused, then moved higher once the market digested the new level.

Even this past week, with the US 10-year yield closing above 5.11% for the first time since 2007, the turbulence landed in bonds rather than stocks. The bond market’s fear gauge hit a three-month high while the stock market’s stayed calm.

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What This Means For Us

The hike is priced in; surprises are not. Another hike this year is widely expected. With Warsh giving little advance guidance, the bigger risk is a surprise, so expect sharper moves around the Fed meetings in late October and early December.
Higher borrowing costs raise the bar for shares. With safe bonds paying around 5%, shares need to earn more to be worth holding. Companies that rely on borrowing feel it most: on 23 September, US small caps, utilities and real estate fell more than twice as much as the S&P 500.
For Singapore-based investors, currency matters too. MAS has tightened twice this year by letting the Singapore dollar strengthen faster, which trims the value of overseas holdings when converted back.

1c. AI Slow Down?

Part 1: Why are rivals suddenly agreeing to slow down?

On 12 September, Anthropic CEO Dario Amodei called on AI labs to slow the pace at which they improve their models, and the heads of OpenAI, Google DeepMind and Microsoft, along with Elon Musk, publicly agreed.

The official reason is safety: AI systems are starting to help build more advanced AI, and in July, AI agents broke into another company’s systems during testing.

My 2 cents. These companies have been at each other’s throats for years, so why agree now? My view is that costs are catching up faster than revenue, and slowing down lets them control spending before the next leg. The evidence cuts both ways:

Evidence that supports the cost view	Evidence that cuts against it
Spending now outruns cash flow: Alphabet’s latest quarterly capex exceeded its operating cash flow, and Amazon’s cash flow after capex turned negative.	No company has cut spending. Bank of America expects the five largest cloud companies to spend about US$795 billion this year and US$1.08 trillion in 2027.
A slower race lets companies earn more from the chips and data centres they already own.	Long term supply contracts are still being signed as if the build out has years to run.
Prices are falling while costs rise: Anthropic cut its flagship product’s price by more than 60% this year, while its computing deal with SpaceX reportedly costs US$1.25 billion a month.	Anthropic reportedly held US$120 to 130 billion in cash in early August and reports positive operating income, so it is not short of cash today.

Where I land. What is confirmed: spending is running ahead of cash flow at the largest AI spenders. What is not confirmed: that cost is the reason for the slowdown. The words have changed but the spending has not, so I treat my view as a hypothesis to test, not a conclusion.

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Part 2: The delayed IPOs of OpenAI and Anthropic

	OpenAI	Anthropic
Timing	Not 2026; now points to 2027	Expected October; now reportedly November
Official reason	Altman: “right now would be an ill-advised moment to go public”, citing safety work	No public statement, which is normal before a listing. Advisers told the WSJ it wants to show Q3 results first
What analysts point to	A gap between Altman’s reported US$1 trillion price floor and what the market will pay; SpaceX’s post IPO slump cooling retail demand; large losses and cash burn	Price cuts and competition squeezing margins; rising infrastructure costs; higher rates; a weak IPO window

My read: while the safety concerns are real, a harder market is probably the primary reason for the delays. Higher rates, a weak IPO window and investors asking tougher questions about margins all make this a bad moment to set a record-breaking price.

A delay lets both companies avoid that test for now.

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What this means for us

The message I want to leave you with is this: without the AI story and the money that followed it, markets would not have done nearly as well over the past few years.

On Bloomberg’s broader definition, which includes Alphabet, Amazon, Meta and Tesla, tech was 51% of the S&P 500 by market value on 31 August, up from well under a fifth in 2006.

Since the start of 2024, the Bloomberg Global AI Index has more than doubled while the MSCI World Index is up by roughly half. Other research agrees:

J.P. Morgan found AI related stocks accounted for 75% of S&P 500 returns and 80% of earnings growth in the three years after ChatGPT launched in November 2022.
Technology is now 42% of the MSCI Emerging Markets Index, more than its weight in the S&P 500.

In my view, whatever happens to AI spending will set the direction for more than half of the S&P 500 and a large part of Asian markets. That is why a slowdown headline, a delayed IPO or a change in capex plans now matters to every diversified investor, not just those who chose to bet on tech.

For the fuller background, you can read my earlier deep dive here:

Artificial Intelligence & The Market: What’s the Situation Today

2. Making Sense of Market Price Actions

Year to date, the markets returned a return of:

Global markets (represented by S&P): 11.80%
Asia ex Japan (represented by MSCI AAXJ): 25.15%

Looking at the price performances of the past 9 months, here’s my take on what has moved the markets:

July: The AI trade cracks

Investors took profits in AI and chip stocks, and Asia felt it most.

The worry was that heavy AI spending would leave the world with too many memory chips, and that Chinese memory makers were catching up. On 28 July, Korea’s Kospi fell 10.8% in a single day as investors who had bought with borrowed money cut their positions, and the world’s largest chip stocks lost over US$1 trillion in value within a few days.

The Fed’s split vote on 29 July added to the pressure. The S&P 500 still ended flat (-0.1%) because money rotated elsewhere: energy stocks rose 12.5% as oil climbed after the Iran ceasefire collapsed, and Q2 earnings growth headed toward 50%, the fastest in five years.

August: Relief and records

Hopes of an Iran deal pulled oil lower, softer US jobs and consumer data eased fears of rate hikes, and Nvidia’s results on 26 August showed AI demand was still strong.

The S&P 500 gained 2.7%, its best August since 2021, with a record high on 13 August, and this time small caps and the equal-weighted index joined in. Asia rebounded too: Taiwan rose 7% and Korea 3.4%, helped by large shareholder returns from SK Hynix and Samsung.

September: Yields take over

Within a few weeks, oil climbed back above US$100, the 10-year yield rose to about 5.3%, the Fed hiked, and AI leaders called for a slowdown (section 1).

The S&P 500 slipped only 0.5% because tech, up about 5%, offset falls of about 7% in financials, materials and real estate. In Asia, the slowdown call hit Korean chipmakers, the US-China summit disappointed investors in China and Hong Kong, and a 2% rise in the US dollar weighed on the region. Taiwan still held near its 52-week high.

Putting Q3 together

Narrow leadership was tested, not broken. AI stocks sold off hard twice this quarter, in July and mid-September, yet the S&P 500 still rose. Strong earnings and money rotating into other sectors absorbed the hit. By September, though, tech was again the only sector carrying the index.
Rates, not the war, still drove the biggest moves. As in the first half, oil mattered mostly through what it did to interest rate expectations. The worst stretches came with the Fed’s split vote in July and the climb in bond yields in September. The best month came when hike fears eased in August.
“Asia” is no longer one trade. AAXJ ended the quarter close to flat, but Korea fell 19% while Taiwan, Hong Kong and Singapore rose. A flat index can hide very different results underneath.

3. Moving Forward: What Should We Do

My stance hasn't changed from last quarter, and Q3 is a good reminder why.

The honest answer is that no one knows where the market goes from here. If you've read this far, you'll notice that every major move this year was driven by something almost no one predicted in January.

Q3 alone gave us AI leaders asking their own industry to slow down, the Fed's first rate hike in more than three years, and an Asian index that finished roughly flat while Korea fell 19% and Singapore rose 10%.

That's the point: trying to time the market is a losing game.

What you can control is matching your decisions to your own circumstances, not to the headlines. So rather than asking "what will the market do?", ask two questions about yourself.

First: when do you need this money? And second: where are you in your journey?

Your answers place you in one of three situations.

If you're early in your wealth-accumulation journey, say five to ten years into a twenty-to-twenty-five-year plan for a goal like retirement, and you don't need these funds any time soon, then stay invested and do nothing.

This is the most important message in this letter, so let me be blunt about why. At this stage, your total invested amount is still small relative to what it will eventually become, and the contributions you'll make in the years ahead dwarf your current balance. Whether the market is up or down this year barely moves the needle on your outcome.

Actively taking profits or "de-risking" now doesn't protect you; it just risks locking in a lower long-term return and interrupting the compounding that does the real work. Volatility is not your enemy here; it's the entry price for the returns you're investing for in the first place.

If you've already accumulated a sizeable portfolio and you're approaching your retirement target, the calculus changes. Now the priority shifts from growing the pot to protecting it, because a large loss late in the journey is far harder to recover from than an early one.

This is the point at which it makes sense to take some profit, rebalance, and gradually position the portfolio for retirement — trimming risk deliberately so that a downturn just before you need the money doesn't derail your plans. This is not a reaction to the current market; it's a planned transition that would make sense regardless of what markets were doing.

If you have a specific, near-term use for these funds (i.e. a home down-payment in two years) then money you'll need soon shouldn't be exposed to this kind of short-term volatility, full stop.

Here it may well make sense to take profit and move those funds somewhere safer, so that a bad six months doesn't arrive at exactly the wrong time. Money with a job to do in the near future belongs somewhere its value is more certain.

The common thread: the right move depends on your timeline and your needs, not on whether the market feels frightening or euphoric this quarter.

If you're not sure which situation applies to you or your circumstances have changed since we last spoke, that's exactly the conversation to have at your next annual review. As usual, if you have any questions, just PM me.

Daniel is a Licensed Financial Consultant with MAS and a Certified Financial Planner (CFP®).

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