In this quarters Global Market update, the S&P 500 continued its upward trajectory during the quarter, regularly recording fresh record highs throughout September as markets embraced risk assets once more. The S&P returned approximately 7% during the quarter, making it by far the best performing of the developed markets. In doing so, the nine-year-long bull market became the longest in history. September also marked the ten-year anniversary of the collapse of Lehman Brothers. Apple made history during the period by becoming the first company in the US to attract a market capitalisation of one trillion dollars after reporting strong quarterly earnings. Amazon soon followed, also on the back of positive results. Despite the big tech names grabbing the headlines again, there was some rotation into value stocks towards the end of the quarter, with some of September’s best performing sectors including telecommunications and utilities. Trade conflicts continued to create economic uncertainty during the quarter. President Trump’s latest round of tariffs came into effect towards the end of the quarter. These consist of a 10% tariff on a further $200bn of Chinese imports, potentially increasing to 25% by the end of the year. In response, Chinese President Xi Jinping announced taxes on over 5,000 US products, worth around $60bn. A number of these tariff announcements and their severity are conditional on whether the other party reciprocates with its own tariffs. These ongoing back-and-forth retaliatory actions, therefore, risk significant escalation going forward. There is evidence emerging that the trade wars are hurting all parties. China has already stepped in to support its currency and the US trade deficit widened by nearly 10% at the latest reading. Recent research has suggested that the current tariffs will cost the average American household around $130 per annum because of higher import prices. Despite some companies noting the adverse effects of the trade wars in their earnings, US corporate profitability remains high, with very strong second-quarter earnings figures. For the S&P 500, Q2 earnings recorded year-on-year growth of around 24%, slightly lower than the figure for Q1, but impressive nevertheless. The big tech names were again the main drivers of growth, however, what has been notable in the most recent quarterly earnings season has been the breadth of positive returns: every sector of the S&P registered solid earnings and revenue growth. Within European markets, there was significant dispersion in returns during the quarter. The German DAX index was one of the poorer performers (-1% return), with the big German exporters beset by global trade war fears. Given their relatively high international exposure compared with their US peers, European companies, on aggregate, are more sensitive to global demand for goods and services. Rising protectionism in key markets such as the US creates significant uncertainty for them. The bright spot in Europe was the strength of the French CAC 40 index (+3%), with its greater emphasis on its domestic economy and President Macron’s efforts to implement business-friendly reform. Another notable laggard was the UK market (down by around 1.5%). Despite some headline-grabbing deals such as Coca Cola’s acquisition of Whitbread’s Costa Coffee and the long-running battle for Sky won by Comcast, the negative connotations of Brexit have remained in focus, especially for foreign investors. Outflows from actively managed funds this year are estimated at £3.5bn. The UK market now trades at 13.5x earnings, comfortably below the long-run average, making UK companies look relatively attractive compared with their European and American peers. In addition, miners and oil companies bounced back in mid-September after a soft few months. This provided some momentum to the main index as the end of the quarter approached. UK smaller companies continue to outperform their larger peers. Japanese equities enjoyed their best five-day rally in almost two years in September, despite fears that Japan’s trade surplus with the US would come under scrutiny. Furthermore, the Yen’s status as a safe-haven currency has been, at times, unhelpful to Japanese exporters, making them less competitive globally. However, the Nikkei 22 index ended the quarter nearly 8% higher after September’s strong rally. Japanese equities remain compelling to investors against a backdrop of continued easy monetary policy and fiscal stimulus, relatively cheap valuations, greater dividend pay-out ratios and an increasing shareholder focus in the form of share buybacks. Emerging markets endured a flat but rocky quarter, whipsawed by the constantly changing rhetoric and a tricky macroeconomic picture. Fears also persist around contagion stemming from crises in the weaker emerging markets such as Argentina and Turkey. The general downward trend in returns has endured all year and investors remain wary of emerging market equities despite a significant valuation discount versus developed market equities. China remains in bear market territory after another poor quarter, with the MSCI China Index falling by around 9% on trade war concerns. One of the bright spots in the emerging markets space was India. Notwithstanding a sell-off in September, the Indian market was up by around 4-5% for the quarter and is now in positive territory for the year. These examples show the contrasting fortunes of emerging market economies this year. Disclaimer: The views thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.