A Strong Economy Beneath a Narrow Market

1. September Volatility September is living up to its reputation as a volatile month, but the headline indexes do not tell the full story. The S&P 500 is up roughly 1% for the month, while the QQQ is up 4.4%, led by the Magnificent Seven.¹ The narrowness of the market is worth watching. Technology has continued to carry the major indexes, but we would prefer to see broader participation as we move toward year-end. Either technology continues to move meaningfully higher, or the other 493 companies in the S&P 500 will need to start doing more of the heavy lifting. We believe the current economic backdrop provides a good reason for broader participation to eventually emerge.

The strength of the Magnificent Seven is also evident in credit markets. Five-year CDS spreads remain tight as of September 28, with six of the seven names below 100 bps. Apple and Microsoft anchor the low end at 43.3 and 52.7 bps, followed by Alphabet at 71.7 and Amazon at 73.4. Nvidia has edged wider to 87.0 bps from 82.2 a month ago, and Meta to 97.2 from 90.3, but moves of roughly 5 to 7 bps are small and leave both comfortably in investment-grade territory. Tesla remains the lone outlier at 161.2 bps.²

2. Economic Growth Remains Strong The latest economic data continues to remain strong. The September PMI composite rose to 58.4 from 56.0, its strongest reading since July 2021.³ Both services and manufacturing contributed to the improvement, with services reaching 58.7 and manufacturing rising to 57.0. The data points to an economy that continues to expand at a healthy pace despite higher interest rates.

New-home sales rebounded 6.4% in August to an annualized pace of 684,000, well ahead of the 616,000 consensus, while July was revised meaningfully higher to 643,000.⁴ The gains were concentrated in the Midwest and South, however, with sales declining sharply in the Northeast and West. Building permits were also revised higher to 1.403 million, although that still represented a 2.1% decline from the prior month.⁵

The labor market remains strong as well. Initial jobless claims fell to 197,000 for the week ended September 19, below the 200,000 consensus, while the four-week moving average declined to 202,250.⁶

Perhaps more encouraging was the latest durable goods report. Headline orders were flat in August, but that was better than the expected 0.3% decline.⁷ More importantly, core capital goods orders jumped 1.6%, well above the 0.6% consensus, with the prior month also revised higher. Strength was evident across primary metals, machinery, and electrical equipment.

3. A Busy Week Ahead Investors have another full week of economic data ahead, beginning with JOLTS on Tuesday, followed by GDP and PCE inflation on Wednesday. Thursday brings the ISM Manufacturing report and nonfarm payrolls, providing another look at both economic activity and the labor market. We will also hear from Nike, which will be particularly important given the recent pressure across the broader athleisure space.

We are also watching the 10-year Treasury yield, particularly with yields moving above 5% and how long they remain there. At those levels, we would expect some investors to shift from equities to fixed income based on yield alone. However, we believe the stronger nominal growth backdrop should translate into better earnings. If real GDP is around 5% and nominal GDP approaches 8%, that level of economic growth should remain supportive of corporate earnings and, ultimately, equities.

While earnings season is still a few weeks away from really getting underway, the economic data in the meantime remains encouraging. A strong PMI, healthy capital spending, stable jobless claims, and better-than-expected housing activity all point to an economy that continues to perform well. That strength should ultimately show up in corporate earnings.

For now, the market remains unusually narrow, and September has been more volatile beneath the surface than the major averages suggest. We continue to believe that the combination of solid economic growth and earnings should eventually lead to broader market participation. Until then, we remain focused on the fundamentals and see periods of volatility as an opportunity to add to quality companies that have been left behind by the market’s narrow leadership.

4. Fixed Income U.S. Treasury yields were higher across the curve last week, fueled by hotter-than-expected PMI that highlighted price pressures from the rise in fuel and shipping costs, and increased hawkish Fedspeak. By Friday’s close, the 2-, 10-, and 30-year yields had risen by 11, 16, and 17 basis points, respectively. Year-to-date, the yields across these maturities have increased by 138, 99, and 65 basis points.⁸

Credit markets weakened last week, with widening evident across both investment-grade and high-yield segments. Investment-grade spreads were wider by 7 basis points to +117, while high-yield spreads expanded 26 basis points to +326. In the tax-exempt market, municipal yields moved higher in tandem with Treasuries, though the increase was significantly more pronounced. Front-end municipal yields rose by 43 to 53 basis points, while intermediate- and long-term yields increased by 22 to 39 basis points over the week.⁹

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Return for Selected Indices¹⁰

All charts are for illustrative purposes only. Past performance does not guarantee future results. Yield, if shown, are for informational purposes only, may change, and do not guarantee future income, return, or investment results. An index is a portfolio of specific securities (such as the S&P 500, Dow Jones Industrial Average and Nasdaq composite), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index.

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Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, as a member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors. All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice. This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

Sources:

1. Bloomberg: As of September 28, 2026 ↩︎
2. Bloomberg: As of September 28, 2026 ↩︎
3. Bloomberg: As of September 23, 2026 ↩︎
4. Bloomberg: As of September 24, 2026 ↩︎
5. Bloomberg: As of September 24, 2026 ↩︎
6. Department of Labor: As of September 24, 2026 ↩︎
7. Bloomberg: As of September 25, 2026 ↩︎
8. Bloomberg: As of September 28, 2026 ↩︎
9. Bloomberg: As of September 28, 2026 ↩︎
10. Bloomberg: As of September 28, 2026 ↩︎