Equities took a breather in September after a strong showing the previous month, with markets grappling with the Fed’s first rate hike since 2023 as inflation remained persistently above its 2% target.
We continue to filter the news and noise through our data-driven Three Dials framework, as we summarize below.
TECHNICAL
Even with stocks on track for their fourth consecutive double-digit return in 2026, bearish sentiment amongst individual investors reached its highest level in over a year, with more than half of survey respondents taking a negative outlook toward equities in September. With stocks continuing to climb the proverbial “wall of worry,” our Technical Dial remains Positive.
ECONOMIC
Despite a resilient labor market, strong corporate earnings, and a stronger than normal revision to Q2 GDP, the consumer remains as pessimistic as ever. With the Federal interest-to-GDP ratio on track to reaching an all-time high as the fiscal year comes to a close, borrowers likely see no path toward lower costs anytime soon. The nature of the current “muddle-through” economy leaves our Economic Dial in Neutral.
VALUATION
While bond yields surge to their highest levels this century, the dividend yield on the S&P 500 is moving the other way, threatening to cross below 1% for the first time in its history. Though increasingly few investors are looking to stocks for current income, this yield disparity only serves to highlight the current gulf in valuations between stocks and bonds. As such, our Valuation Dial remains Negative.
MARKET COMMENTARY
Equities took a breather in September after a strong showing the previous month, with markets grappling with the Fed’s first rate hike since 2023 as inflation remained persistently above its 2% target.
The S&P 500 was roughly flat on the month, with the blue-chip index still up +13% year-to-date. The more rate-sensitive small caps stocks fell -5% in September, though the Russell 2000 Index is still up +14% for the year. International stocks declined -3% on the month for a +12% full-year gain on the MSCI ACWI ex-US Index.
Within fixed income, bond markets fell another -2.6% for the month, with the Bloomberg Aggregate Bond Index down -3% so far in 2026. The 10-year treasury closed the month around 5.3%, its highest level since the Dot Com bubble began to burst in 2000, with markets taking their cue from the Fed’s commitment to keep rates higher for longer in an effort to snuff out inflation.
Commodity prices were broadly flat, with both gold and oil pulling back, though Bitcoin prices surged for the third consecutive month back to levels not seen since the start of the year.