Market Commentary | September 2026

Market Commentary – September 2026

The real action in markets in September was not in the stock market but in the bond market, particularly global sovereign bonds. I say that because bond yields jumped around the world as investors responded again to worries about ever rising government debts and deficits, an increasing competition for capital as big technology companies tap the capital markets for massive funding to finance the CapEx spend on developing out the GenAI infrastructure, and all along with higher energy prices and broad inflation concerns.

To highlight the global nature of the rate move, especially with longer term rates, the 10 yr Treasury yield rose 54 basis points in September, closing the month at 5.29%.¹ The Japanese 10 yr JGB yield, which is up about 100 basis points on the year, was up another 11 basis points in September.² The French 10 yr yield, and whose budgetary worries puts France as the new financial problem child, jumped 68 basis points in the month to 4.86%.³ in the UK, the 10 yr gilt yield was higher by 36 basis points to 5.42%⁴ and in Germany, a country that has a relatively low debt to GDP ratio, the 10 yr bund yield was higher by 26 basis points to 3.59%.⁵

Looking at the short-term part of the yield curve, in September we got rate increases from the Federal Reserve, the Bank of Japan, the European Central Bank and the Reserve Bank of Australia of note. The approach and focus of these central banks is to combat inflation that is still running well above their targets but irrespective of their rate moves, the longer end of their bond markets has already raised the cost of capital. Central banks are more playing follower rather than leader when it comes to interest rates across global yield curves.

With regards to the US stock market and the S&P 500 in particular, its resilience is masking more weakness underneath the hood. Remembering that the index is heavily concentrated in the beneficiaries of the data center construction spend, the market cap weighted index was down by just .4% in September but the equal weighted index was lower by a more pronounced 5%.⁶ Furthermore, the S&P 500 growth index rallied 1.9% in September but the S&P 500 value index fell by 3.3%.⁷ Looking at stocks outside the S&P 500, the small cap Russell 2000 saw a monthly decline of 5.4% and the S&P Midcap 400 index was weaker by 4.4%.⁸

So, the full picture of the state of the stock market is not told just by viewing the performance of the heavily tech weighted S&P 500 market cap index which continues to benefit from the huge investments being made in building data centers. The other parts of the market have been weak I believe because of the notable rise in interest rates and gasoline and diesel prices which flow through to so many parts of the economy.

Take diesel in particular, every single truck bypassing our highways that is not battery powered, which currently is barely any, is dealing with a sharp rise in prices. According to AAA, the average price averaged $3.76 right before the conflict with Iran began. As of this writing it stands at $6.32.⁹ Many trucking companies do pass on these higher costs to their customers with much of it flowing through to the end consumer. With respect to gasoline prices that those of us drive have to pay each week/month, that price is currently around $4.35 a gallon vs about $3.00 prior to the war.¹⁰ The lower income consumer is certainly more exposed to this and has to be more circumspect with other areas of spend in response.

Looking at inflation in total in the US, the August CPI figure was higher by 3.4% y/o/y with the greater pain point being in wholesale prices where PPI was up by 5.4% y/o/y.¹¹ This 200 basis points difference is historically elevated and the key question of whether it means a profit squeeze for companies or not is the extent to which they can pass it on to consumers. I believe a complete analysis of inflation needs to include both measurements.

I wish there was a positive update with the conflict with Iran because there is not but we are seeing more transits taking place through the Strait. That said, because more of it is with crude more so than products, it helps to explain what I mentioned above in why gasoline and diesel prices remain elevated, particularly the latter and globally. This of course comes right before the midterm elections where I'm sure all of you are seeing political ads wherever you go. Because we are most likely going to have a split government, I don't expect any major legislation to pass in the coming two years and why markets won't really react either way.

We are on the cusp of seeing Q3 earnings reports and it's expected to be strong again with FactSet forecasting earnings per share growth of an incredible 29.5% y/o/y.¹² Keep in mind though that partly influencing this figure are mark to market gains that some big tech companies have in some private investments and about half that growth is coming from the AI data center buildout. Revenue growth for the quarter is forecasted by them to rise by 12.3% y/o/y.¹³ As we always believe, it's important to always look under the hood to get a clear understanding of what is driving the headline figures.

The same can be said with the US economy. The main pillars of growth have been the construction of data centers and anything selling into the infrastructure development ecosystem, upper income consumer spending and beneficiaries of the large amount of US government spending, particularly healthcare and aerospace/defense. Manufacturing is in a recovery after three years of contraction but some of that is due to the data center build and some related to inventory restocking. On the flip side, lower to middle income consumer spending has been more challenged because of higher prices. Housing remains in recession with the recent jump in the average 30 yr mortgage rate back above 7% making things tough again.¹⁴ And, capital spending Ex AI has been lackluster. With regards to the labor market, we're in a strange state where there is a very modest pace of firing's but also in a slow state of hiring.

Conclusion

Markets and how they intertwine with global events are never dull and September was no exception. There are just so many moving pieces to juggle and we do our best to manage our long-term investing time horizon with the shorter-term macro influences. It's a highly dynamic and volatile world but always is. Being humble in trying to figure it out is important but risk management remains vital to us as well and thus we're always watching our backs from an investing standpoint.

Regardless of how all the above plays out, it remains essential that investors maintain adequate short-term liquidity to cover two to three years of spending needs. Knowing that near-term period is secured allows the rest of a portfolio to be viewed with a longer perspective, and a long-term horizon is always an investor's best friend.