Resilient Growth, Narrower Leadership
The story of the week was a global rethink of interest rates. It began in the US on Wednesday, when the S&P Global flash Purchasing Managers’ Index (PMI) rose to 58.4 — the fastest pace of private-sector growth in more than five years. Input costs rose at their steepest pace in four years, and firms reported some of the worst supply bottlenecks in the survey’s history. For a Federal Reserve that had raised interest rates only a week earlier, that combination is an awkward one, and it strengthened expectations that policymakers may need to tighten again.
US Treasuries Feel the Pressure
Treasury markets bore the brunt of that shift, with the 10-year yield rising to 5.2%, while weaker demand at five- and seven-year government bond auctions added to concerns about how much yield investors will demand to keep financing the US deficit. Consumers are feeling the squeeze too, with sentiment falling to a four-month low as higher fuel prices, tariffs, and borrowing costs weigh on household finances — a pattern echoed around the world.
Trade and AI Provide the Counterweight
Trade and artificial intelligence offered a counterbalance to the rates story. Chinese President Xi Jinping travelled to Washington for his first US state visit in 11 years, with both sides agreeing to extend their trade truce until 10th January 2027 and announcing progress across agricultural goods, medical devices, selected consumer products, and AI. Larger disagreements remain unresolved, but Wall Street welcomed the reduction in near-term uncertainty, helping the S&P 500 and Nasdaq push ahead with AI-related names again leading the way. Meta stood out, surging 13% after launching its personal AI agent, Muse, taking the stock close to record highs; Microsoft rose 4.5% on a revamped Copilot platform, and memory maker Micron rose 6.5% ahead of results due the following week. Defensive sectors such as utilities struggled by comparison, weighed down by higher yields.
A Global Shift in Rates
Europe faced the same monetary pressures against a softer economic backdrop. Eurozone activity expanded at its fastest pace in more than three years, helped by stronger conditions as Germany and France returned to growth. The UK was more subdued, with its PMI easing to 51.7, though inflation at 3.1% remained high enough to keep the Bank of England cautious. That tension showed up in bond markets, where the UK 10-year gilt yield reached 5.36% and the German equivalent rose to 3.61%. Interestingly, the UK 2-year yield barely moved, suggesting investors are less worried about the next Bank of England rate decision than about long-term inflation and government borrowing ahead of the autumn budget. Equities were steadier: the STOXX 600 gained 0.5% and the FTSE 100 added 0.3%, mostly driven by banks benefiting from higher interest rates.
Japan offered another sign of how dramatically the global rate environment has changed. The Bank of Japan had already lifted rates to 1.25% — their highest level in more than 30 years — while the Japanese 10-year government bond yield moved above 3%. Even so, the Nikkei gained 2.1% in a holiday-shortened week, supported by the banking sector and a weaker yen. Chinese equities were less enthusiastic about the Washington talks, with investors having hoped for a longer trade truce than the two-month extension eventually agreed.
Relief in Energy, Pressure on Precious Metals
Energy markets delivered some welcome relief. Brent Crude fell 5.6% to $97.44 a barrel, and WTI Crude dropped to $92.41, as diplomatic discussions involving Iran and the Strait of Hormuz improved and Saudi pipeline flows recovered. A sustained fall in oil prices would matter well beyond commodity markets, easing pressure on transport, manufacturing, and household costs at a time when energy remains a key complication for central banks. Precious metals moved the other way, with gold and silver down 2.1% and 3% respectively, as higher bond yields and a stronger dollar increased the opportunity cost of holding assets that produce no income.
Digital assets, by contrast, enjoyed a stronger week, although most of the excitement came early on. Bitcoin briefly traded above $87,000 — its highest level since January — after more than $800 million of short positions were forced to close and US spot Bitcoin ETFs attracted close to $1 billion in a single day. Soaring bond yields later cooled the move, but Bitcoin still finished around 4% higher, with other majors following suit: Ethereum gained 1.7% and Solana nearly 10%. The pattern remains familiar — crypto continues to trade as a gauge of risk appetite rather than a shelter from rising rates.
What to Watch This Week
The broader picture is one of resilient growth meeting tighter financial conditions. Equity markets continue to reward businesses capable of delivering strong earnings growth, particularly around AI, while cash and fixed income investments are once again credible alternatives for investors rather than being purely defensive in nature.
Looking ahead, Micron reports earnings on Wednesday, with investors likely to focus closely on demand for high-bandwidth memory, pricing, and data-centre spending for clues as to whether the AI investment cycle still has momentum. Revised UK second-quarter GDP figures are also due Wednesday, before US manufacturing data arrives on Thursday. Friday then brings two potentially important signals for the rates outlook: the September US employment report and the euro-area flash inflation reading. Together, they should provide the next test of whether strong growth can continue without forcing central banks even further into restrictive territory.
Chart of the Week
Beneath the headline strength of the S&P 500, market leadership has become increasingly concentrated. The S&P 500 has moved higher relative to its equal-weighted counterpart (left-hand axis), indicating that the largest constituents are once again doing a disproportionate share of the work. At the same time, semiconductors — the AI names — continue to outperform the S&P 500 (right-hand axis), reinforcing the importance of the AI and data-centre investment theme in driving US equity returns. Taken together, the two series suggest that while the index remains strong, the rally is leaning more heavily on a narrower group of market leaders.
This Week in the Portfolios
What Happened?
Markets were pulled between resilient growth and tighter financial conditions. Strong US activity and persistent cost pressures pushed government bond yields higher, while AI-related shares and improving trade headlines supported equities. Japan also advanced despite higher domestic rates, whereas energy and precious metals weakened as oil, gold, and silver fell. Against this backdrop, all three funds produced positive returns: Conservative returned 0.24%, Balanced 0.38%, and Growth 0.53%.
The strongest contributions came from the themes rewarded by the market. Global Technology added 0.19%, 0.28%, and 0.19% to Conservative, Balanced, and Growth respectively, while emerging-market equities contributed approximately 0.10%, 0.21%, and 0.37% across the two underlying holdings. Japan was particularly important in Growth, where the two positions added around 0.30%. These gains more than offset weakness in real assets: energy detracted 0.04%, 0.17%, and 0.31%, while gold, silver, and mining exposures were also negative. Bond and absolute-return holdings were broadly mixed, with their more visible drag concentrated in Conservative and Balanced.
Why We’re Positioned This Way
The portfolios are positioned to participate in durable equity themes without relying entirely on the narrow group of mega-cap US companies currently driving the market-cap-weighted S&P 500. Technology, emerging markets, Japan, global value, smaller companies, and infrastructure provide distinct sources of return, while gold, energy, and mining offer diversification against inflation and geopolitical risk even though they detracted this week. Conservative and Balanced also retain more meaningful allocations to cash proxies, bonds, and absolute-return strategies, helping to moderate volatility when rising yields pressure traditional assets.
Within US large caps, the equal-weight S&P 500 exposure is a deliberate tactical choice. It broadens participation beyond the largest index constituents and should benefit if market leadership widens, but it has lagged while mega-cap and AI-related companies have dominated. This is partly offset through the Perspective American Extended Alpha Fund, whose ability to combine long and short positions with active stock selection adds a separate return driver, intended to identify the strongest themes and businesses rather than simply replicate the index. This week, the combined equal-weight and Extended Alpha positions contributed about 0.09% in Conservative, 0.11% in Balanced, and 0.06% in Growth, with the active fund contributing more than 75% of the sleeve’s return across the funds.
What TEAM Is Doing
TEAM is maintaining a diversified mix of return drivers rather than chasing the week’s narrow winners. Targeted exposure to AI and US growth through the Nasdaq is being balanced with equal-weight and active extended-alpha holdings that can perform under different leadership regimes. Elsewhere, allocations to emerging markets and Japan captured this week’s strength, while value, smaller companies, and infrastructure broaden the equity opportunity set. Defensive assets remain more prominent in Conservative and Balanced, and real-asset positions are being retained for their strategic diversification benefits despite their short-term drag.
What We’re Watching
Several factors are being monitored closely: whether strong US growth and inflationary pressure keep bond yields elevated, particularly as employment and manufacturing data test expectations for further tightening; the breadth of the US rally, where continued semiconductor and mega-cap leadership would favour technology-heavy indices while broader participation would improve the relative case for equal weight, value, and smaller companies; the durability of Japan’s earnings and currency support; the response of Chinese assets to the limited trade truce; whether lower oil prices persist; and whether the setback in gold, silver, and mining is a temporary consequence of higher real yields and a stronger dollar, or the start of a more sustained change in trend.
At NEBA Financial Solutions, we continue to track these developments closely on behalf of our clients, helping ensure portfolios remain appropriately positioned as growth, inflation, and rate expectations evolve.
This article is based on insights and analysis provided by Matthew Boxall of TEAM.
