At the time of writing, the United States’ (US’s) S&P 500 is up around 14% for the year, a figure that on its own describes a market in good health but offers little indication of who has delivered that return and what it truly means for investors’ returns.
If you break the S&P 500 into its 11 sectors, the picture takes on a different hue. The technology sector jumped 36%, while energy, unsurprisingly, saw gains of 44.6%. The remaining nine sectors however, ranged from a 10.6% gain in healthcare to losses in utilities, communication services and consumer discretionary, the last of which is down 5.1%. Financials are essentially flat at 0.2%.
The S&P 500 has two indices – the equal-weighted S&P 500, which gives each constituent the same weight of 0.2%, regardless of size, and the cap-weighted index which weights each company by market capitalisation. The equal weighted index had gained around 9.5% at the start of October against 12.6% for the cap-weighted index on the same date, and the Dow, with its heavier tilt toward industrials and financials, sat at 7.2%. This highlights that the headline return is being carried by a small number of stocks inside two sectors, and investors holding a genuinely diversified US portfolio will have experienced a far more modest year than the 14% jump in the index suggests.
The drivers behind the technology surge
The more instructive detail lies within technology itself, because the gains have not come from the companies most investors associate with the AI trade. The Magnificent Seven are on course for their weakest collective year since 2022, with Microsoft the poorest performer of the group. Software stocks were sold heavily in February on concern that AI would erode the very business models it was expected to enhance, a move that removed close to $1 trillion in market value. Returns have instead accrued to the physical supply chain behind AI infrastructure, where demand for memory and storage has driven extraordinary moves in Micron, up roughly 277% by early October, Sandisk, up more than 600%, and Dell, up close to 350%. Capital has moved from the companies spending on AI capacity to the companies being paid to build it, and that leadership is concentrated enough that a single soft signal on hyperscaler capex can move the whole sector, as the clusters of 10% single-session declines across storage, chip and optical networking names this month have shown.
Energy, a spanner in the works
Energy’s leadership has a more direct explanation. The US-Iran conflict that broke out at the end of February, and the threat to shipping through the Strait of Hormuz that accompanied it, pushed crude sharply higher, and West Texas Intermediate (WTI) is trading above $93/barrel at the time of writing. The energy supply shock has also reshaped the rate outlook, which is the factor most responsible for weakness elsewhere in the market. The US Federal Reserve (Fed) raised the funds rate by 25 basis points to 3.75% to 4% on 16 September, its first hike since July 2023 and the first policy move under Fed Chair, Kevin Warsh, with recent data releases pointing to a further increase before year end, while the 10-year US Treasury yield is holding above 5.2%. At those levels, utilities, real estate and the more leveraged parts of consumer discretionary carry a direct valuation headwind, which is precisely where the lagging sectors are concentrated.
Europe and the uk’s equity outlook
Europe has followed a similar script from a less favourable starting point. The Stoxx 600 is up roughly 6.5% for the year, having recovered from an 8% fall in March when US-Iran hostilities began, and the European Central Bank (ECB) has raised its deposit rate twice, to 2.50% in September, as the energy shock lifted its 2026 inflation forecast to 3%. Germany’s DAX, which gained 23% in 2025 on the strength of fiscal expansion in defence and infrastructure, has struggled to hold ground this year. The United Kingdom (UK) has fared better on the surface, with the FTSE 100 up around 5% in price terms and 8% including dividends, helped by an index weighted toward energy, mining and defence. The Bank of England (BoE) held the Bank Rate at 3.75% in September, though three of nine members voted for a hike, and with Consumer Price Index (CPI) inflation expected to reach 3.75% in the fourth quarter, means a move at the November meeting cannot be ruled out.
The JSE’s tech and commodities lag
South Africa sits at the other end of the spectrum. The JSE All Share Index is down close to 7% through the first three quarters after rising 39% in 2025, a reversal driven largely by the same precious metals miners that powered last year’s rally, while tech giant, Naspers and its spinoff, Prosus, have taken around four percentage points off the index as Tencent has lost more than a quarter of its value. Select domestic names have held up, with grocery retailer, Shoprite, up 22% for the year, but two South African Reserve Bank (SARB) hikes, taking the repo rate to 7.25%, leave limited room for a broad recovery in domestically focused equities in the near term.
The real picture
The thread running through all of our examples is that this year’s returns have been earned by a narrow set of positions tied to either the energy shock or the AI build-out, while the broader market has absorbed the cost of the higher rates those same forces produced.
TURNING TO THE MARKETS
The week’s key themes:
- US 10-year yields slid to a three-week low of around 5.09%
- The Dow powered to its highest close in a month as money rotated out of AI and chip names into cyclicals
- Gold firmed about 1.5% toward $4,170/ounce as a softer dollar and lower yields offered relief
- The dollar eased from an 18-month high as the odds of an October Fed hike roughly halved
Bonds (10-year benchmark yields)
The 10-year Treasury yield fell for a third straight session to a three-week low on Thursday, near 5.09%, its lowest level since late September, having traded as low as roughly 5.04% intraday before settling around 5.08% to 5.09%, down around six-to-10 basis points. The driver was not the data – September CPI and Producer Price Index inflation both ran hot – but, rather, the Fed’s reaction. Fed Vice Chair, Michelle Bowman and Fed President, Mary Daly, signalled the committee can wait before hiking again, and the Chicago Mercantile Exchange’s CME-implied odds of an October hike slumped toward 29%.
Germany’s 10-year Bund strengthened modestly to about 3.41%, down around three basis points, drifting lower in sympathy with Treasuries and on the calmer equity tone rather than on any domestic catalyst. The wide gap to US and UK yields underlines the divergence in policy stance: the euro area sits at the low end of the developed-market yield spectrum, which continues to cap the euro’s rate appeal even as the dollar weakens.
The UK’s 10-year Gilt yield eased about four basis points to roughly 5.38%, its largest decline among the majors on Thursday as global yields calmed. Gilts nonetheless remain among the highest-yielding core bonds, reflecting sticky UK inflation and a market now positioned for a BoE hike to 4% in November – a sharp shift from a month ago, when most economists expected no further rate hikes this year. Thursday’s firmer August gross domestic product (GDP) reading reinforced that repricing.
South Africa’s 10-year government bond yield sat around 8.87%, little changed and still carrying one of the widest real and nominal premia in the emerging-market complex. The backdrop is the SARB which lifted the repo rate to 7.25% in September and its Governor, Lesetja Kganyago, who has flagged that inflation may not sustainably reach target until 2028 – a hawkish anchor that supports the carry case for the rand but reflects persistent price-stability concerns. The local Medium-Term Budget Policy Statement (MTBPS) on 21 October is the next domestic test for local yields.
Equities
Wall Street closed higher in a notably two-speed session on Thursday. The Dow jumped 1.1% to 52,177.69, its best close in a month, and the Russell 2000 rose around 1.4%, as investors rotated into blue-chips and cyclicals. The S&P 500 added just 0.3% to 7,744.06, and the Nasdaq Composite eked out 0.1% to 26,713.03 after spending most of the day lower.
European blue-chips firmed, with the Euro Stoxx 50 last around the 6,180 to 6,190 area after a modest advance. The region took its cue from the calmer bond market and the softer dollar, with Germany’s DAX up about 0.3% to 25,368 and France’s CAC 40 up 0.8% to 7,935. Gains were broad but unspectacular, consistent with a market relieved that US yields retreated but wary of the same chip-sector overhang weighing on global tech.
The UK’s FTSE 100 led the region, climbing about 1.1% to 10,840, helped by calmer Gilt yields, a firmer set of UK activity data and the index’s heavy weighting toward commodity, energy and defensive earners that benefit from elevated oil and still-reasonable sterling strength. For UK-exposed clients, the combination of a stronger pound and a rising large-cap index this week reflects the market pricing a more hawkish BoE as a growth-and-currency positive rather than a drag.
The local JSE All Share Index closed firmly higher on Thursday, 1.53% to 110,171.85, reflecting a strong session that saw the index run from a low of 108,386 to settle at its intraday high. The advance tracked the improved global risk tone from the dovish repricing of Fed expectations, and was reinforced by two local tailwinds – firm precious-metals prices, with gold near $4,170/ounce supporting the heavyweight mining complex, and a rand that held around R16.50/$ against a softer greenback. Context, though, matters for positioning. At 110,172 the index remains roughly 15% below its 52-week high of 129,339 and only about 4% above its 52-week low of 106,047.
Commodities
Spot gold rose about 1.5% to roughly $4,170/ounce, with December futures settling near $4,170, extending a bounce as the dollar slipped from its 18-month high and Treasury yields fell. The metal is firm but still trades below its early-2026 record. The drivers are clear: lower real-rate expectations, a softer dollar, persistent central-bank demand and lingering safe-haven interest against the inflation-and-equity-volatility backdrop.
WTI jumped about 3% to just under $98/barrel and Brent is trading around $106/barrel, with the complex underpinned by Middle East supply risk, including a reported vessel incident near the Strait of Hormuz. This is the uncomfortable cross-current for the inflation story. Energy strength is feeding directly into the hot producer-price prints that are keeping the Fed hawkish, and for South Africa, a net oil importer, sustained crude near $100/barrel raises the import bill and pressures domestic fuel costs even as the rand holds firm.
Currencies
The US Dollar Index eased roughly 0.5% to around 102, pulling back from the 18-month high near 102.7 it printed on Wednesday, when a higher-than-expected US CPI print was released. The move is about relative policy expectations, not dollar weakness per se as the greenback remains near multi-month highs, but the halving of October Fed-hike odds trimmed its rate advantage at the margin. The key near-term swing factor is Fed Chair Warsh’s appearance today and then the FOMC taking place on 27 and 28 October. Until then, the dollar is likely to trade off every Fed comment rather than off the data.
The euro firmed about 0.3% to around $1.1190/€ to $1.1210/€, recovering from an 18-month low as the dollar softened. The bounce is dollar-led rather than euro-driven; with Bund yields near the bottom of the developed-market range and no fresh domestic catalyst, the single currency lacks its own impetus.
Sterling was the standout, rising through $1.3250/£ to its highest level since 6 October and rebounding from Wednesday’s 11-month low near $1.3150/£. A weaker dollar and a UK growth surprise – where August GDP rose 0.1% against expectations of a contraction and with factory output notably firm – hardened expectations of a November BoE hike to 4%. The $/£ pairing still sits well below its August highs of near $1.37/£. Major UK data releases scheduled for 20 and 21 October and BoE Governor, Andrew Bailey’s remarks today are the pound’s next tests.
The rand firmed about 0.5% to around R16.50/$, up from near R16.59/$, trading in a tight R16.50/$ to R16.60/$ band. The move comes on the back of the softer dollar, firm gold, and a constructive global risk tone, partially offset by elevated oil and domestic fiscal uncertainty ahead of the MTBPS on Wednesday 21 October. The rand’s resilience this year has been notable, given the global backdrop, and speaks to the stability that the new 3% inflation target and a prudent SARB bring to the table.
*Please note that all information is at the time of writing.
Key indicators:
USD/ZAR: 16.42
EUR/ZAR: 18.53
GBP/ZAR: 21.89
BRENT CRUDE: $105.38
GOLD: $4,209.26
Sources: Bloomberg, Investing.com, LSEG Workspace, Sharedata and Trading Economics.
Written by: Citadel Global Managing Director, Bianca Botes.