Summary

• US equities may face a more challenging environment, as elevated Treasury yields, persistent inflation and renewed Middle East tensions could limit further valuation expansion, particularly for high-multiple growth stocks. Nevertheless, sustained AI infrastructure spending and resilient corporate earnings should provide underlying support. We expect market leadership to increasingly favour companies with visible earnings growth, strong cash flows and exposure to AI compute, power infrastructure and enterprise adoption.
• Malaysia enters 4Q26 with resilient fundamentals despite cautious sentiment. GDP growth accelerated to 6.0% YoY in 2Q26, while continued investment in data centres, semiconductors, power infrastructure, NIMP 2030 and NETR provides structural support. A softer Ringgit favours exporters, although elevated yields, oil prices, foreign outflows and GE16 uncertainty could limit upside. We see selective opportunities across Technology, Semiconductors, Construction/Infrastructure and Gloves, focusing on visible orders and earnings growth.

Seasonality Analysis 

• FBM KLCI - September weakness, December strength. The index fell 4.7% in September 2026, consistent with its historically weak September average of -1.6%. October offers a more favourable outlook, averaging +1.0% with a 68.0% winning rate, while November is relatively flat. December is historically the strongest month, averaging +2.3% with a 92.0% winning rate, suggesting potential year-end support from window dressing and institutional positioning.
   
• FBM Small Cap eyes 4Q recovery after mild dip. The FBM Small Cap Index eased 0.5% in September 2026, outperforming its historical average of -1.0%. Looking ahead, October offers a more favourable outlook, averaging +1.2% with a 64.0% winning rate, while November remains softer at -0.2%. December typically strengthens, averaging +0.9% with a 64.0% winning rate. Hence, we anticipate a potential 4Q26 recovery, supported by improving seasonality and year-end window-dressing activities.
   
• Construction and Utilities are emerging as key leaders. Construction has strengthened firmly into the Leading quadrant, while Utilities and Transportation continue to show improving relative momentum. Technology retains strong relative strength but remains in Weakening, suggesting some near-term loss of momentum. Meanwhile, Consumer, Telco and Financials are gradually improving, while Property remains among the weaker sectors.
   

US Review and Outlook

• Higher yields test the AI rally. US equities remained resilient in 3Q2026, with the S&P 500 gaining about 3.6% QTD despite rising Treasury yields and inflation concerns. The index ended 29 September at 7,670.84, bringing its YTD gain to 12.1%, while the Nasdaq was up 15.3% YTD. Meanwhile, the 10-year Treasury yield climbed above 5.0%, adding valuation pressure, particularly on growth stocks.
   
• Fed tightening returns. The Fed raised rates by 25bps to 3.75%–4.00% in September as inflation remained elevated despite resilient economic activity. August headline CPI rose 3.4% YoY, while core CPI increased 2.4%. Higher energy prices remain an inflation risk, keeping Treasury yields and incoming inflation data key market drivers.
   
• Middle East risks remain. Renewed US–Iran tensions have weakened earlier expectations for sustained geopolitical de-escalation. Uncertainty surrounding the Strait of Hormuz keeps oil-price risks elevated, with potential spillovers into inflation, transportation costs and consumer spending.
   
• AI fundamentals remain resilient. AI earnings momentum remains strong despite macro headwinds. Broadcom's 3QFY2026 revenue surged 86% YoY to USD29.6bn, with free cash flow reaching USD13.7bn. However, elevated yields could make investors increasingly selective, favouring companies with visible earnings, strong cash flow and execution certainty.
   
• US sector leadership remains mixed, with the relative rotation graph showing leadership concentrated in selected sectors. Information Technology (S5INFT) remains in the Leading quadrant, although momentum is still below 100 and only beginning to recover, suggesting relative strength remains intact but has yet to regain strong momentum. Healthcare (S5HLTH) and Industrials (S5INDU) are also positioned in the Leading quadrant, though their recent trajectories point toward some moderation. Financials (S5FINL) sits in the Weakening quadrant but is showing a clear upward turn in momentum, suggesting potential for renewed leadership if the recovery continues. Meanwhile, Utilities (S5UTIL), Communication Services (S5TELS) and Consumer Discretionary (S5COND) remain largely in the Lagging/Improving transition, while Energy (SPN) has seen momentum ease after previously displaying stronger relative performance.