Monthly Market Letter | September 2026

The bond market took center stage through September with inflation, oil supply chains and the Federal Reserve performing as an ensemble.

The August Consumer Price Index showed prices rose 3.4% on a year-over-year basis. Backed by a resilient US economy and stable job market, the Federal Open Market Committee (FOMC) raised the federal funds rate by 25 basis points at its September meeting, to 3.75%–4.00%, the first hike since 2023. Federal Reserve Chair Kevin Warsh did not indicate whether the move signaled a long-term policy pivot, saying the decision “removed a dose of accommodation.”

Investors may not have been convinced, sparking a global bond selloff. The 10-year Treasury yield rose to a multi-year high, and there’s the possibility of another rate hike in either October or December, as well as further action in 2027.

Meanwhile oil prices, which have been a major inflation driver, climbed back above $100 per barrel as a key pipeline in Saudi Arabia was damaged by the Iran-aligned Houthi militia and Strait of Hormuz tanker traffic remains a shadow of its pre-war volume.

Against this backdrop, the S&P 500 appeared calm this month. A look under the hood, however, showed the two AI-involved sectors remaining strong and outperforming the other nine sectors. The weakest performance was concentrated in companies and sectors that are particularly sensitive to higher interest rates.

We’ll dive into more details below, but first, let’s look at how September finished.

*Data represents 09/30/2026 closing values, except for the MSCI EAFE and Bloomberg Aggregate Bond indices, which represent 09/29/2026 closing values.

HAS JOBS, LACKS CONFIDENCE

The August reports showed the job market remains healthy, with an estimated 162,000 jobs added and an unemployment rate of 4.1%. Hiring and separations also showed little movement during the month, pointing to continued stability in labor market turnover. The September preliminary Consumer Sentiment Index came in much weaker than expected, deteriorating significantly from August. Consumers’ concerns? Weak expectations for future business conditions, fuel prices and trade tensions.

INVESTORS REPOSITIONING BUT STAYING INVESTED

High oil prices and bond yields are both headwinds for equities, and absent the boom in AI capital expenditure, the headline indices would show this pressure more clearly. Investors rotated away from rate- and energy-sensitive stocks rather than retreating from the market — a sign of a healthy bull market. With the Fed’s rate hike, expect markets to be sensitive to inflation reports, job numbers and the price of debt.

YIELDS RISE ACROSS THE CURVE

Treasury yields rose broadly across maturities, with more concentration on the short end. Still, yields on the 10- and 30-year Treasuries reached multi-year highs. Investment-grade corporate debt rose roughly in tandem with Treasuries, keeping spreads flat, while municipal bond yields for AAA debt rose 50 to 85 basis points across the curve, pushing the 30-year AAA bond over 5% for the first time since 2011, and outpacing the rise of the Treasury yield. These moves increased the relative value of muni bonds to Treasuries from 70% to 77% for 10-year notes and 87% to 93% for 30-year bonds.

MIDDLE EAST OIL EXPORTS MAY BE POISED FOR PARTIAL RECOVERY

Amid dual hurdles to Middle East oil exports — the restricted Strait of Hormuz and a damaged Saudi Arabian pipeline — there are tentative signs of progress at the end of September. Iran’s rhetoric about reopening Hormuz showed some softening, while the White House indicated its willingness to reengage with Iran diplomatically. Meanwhile, Saudi Arabia took steps to resume operations at the damaged pipeline, although supply recovery is unlikely to be smooth.

NO BREAKDOWNS OR BREAKTHROUGHS AT TRUMP-XI MEETING

The Trump-Xi meeting largely played out as expected, producing no major breakthroughs. More importantly, there were no breakdowns in the trade truce that has stabilized the bilateral relationship over the past year. The most impactful outcome was an agreement to extend the existing tariff and critical minerals truce (which was set to expire November 10) through January 10, while both sides agreed to continue economic negotiations, leaving the other issues around tariffs, technology, Taiwan and AI unresolved. The two countries are expected to have additional opportunities to engage around the November 18-19 APEC Summit and the December 14-15 G20 Summit. While tariff and trade risks remain, both governments appear to prefer managing those risks through recurring negotiations rather than returning to the escalation cycle seen previously.

US-CANADA TRADE WAR ACCELERATES

Trade negotiations between the US and Canada collapsed despite reportedly nearing an agreement that would have reduced steel and aluminum tariffs. Canada promptly imposed retaliatory tariffs of 15–50% on roughly $20 billion of US goods, while the Trump administration expanded its 50% Section 338 tariffs and announced targeted import bans. Although the dispute remains under negotiation, further escalations may precede real progress. By contrast, Mexico and the United States have accelerated bilateral discussions with the goal of reaching an interim agreement before the November 3 midterms, with Mexico reportedly seeking relief from US Section 232 tariffs while addressing US demands on automotive content and Chinese investment.

THE BOTTOM LINE

It’s rare for bonds to draw more attention than the equities market, so when it does happen, it’s easy to read an ill omen there. But while it’s true higher borrowing costs can drag at parts of the market, which we saw in the post-COVID inflation peak, the market and economy have remained resilient and investors are staying invested. Inflation, higher interest rates, energy prices, and geopolitics remain sources of uncertainty, but the underlying strength of the economy and corporate earnings continues to provide an important counterbalance.

• Wall Street hates uncertainty. The war with Iran has added to the global economic challenges and, until there is more clarity, the global markets will remain fragile.
• As we move further into 2026, we continue to expect a slowing of economic growth in the United States, but not a recession. We will continue to review and update our thesis as the Federal Reserve’s interest rate policy is revealed.
• We expect U.S. equities to be volatile for much of 2026. Returns should be positive, but more in line with historical averages, as well.
• Cash is king for safety and stability in 2026.
• In 2026, we recommend investors continue to consider an overweight of alternative investments, including both private equity and credit.
• Gold has reached our current target of $5,000.00 per ounce, topping out at $5,589.00 per ounce on January 28, 2026. We are currently holding our target at $5,000.00 and expect gold to consolidate between $4,000.00 and $5,000.00 per ounce for the time being.
• Cryptocurrencies had a volatile 2025. We expect continued volatility in 2026.
• Depending on your timeframe, current investment strategies should be based on what’s happening “Now”, “Next”, and “Later”.
• Don’t panic. Be patient. Look to profit.

Sincerely,
Your Investment Team at Great Lakes Wealth

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