A Strong Economy Through Market Volatility

1. Market Volatility and the Road Ahead It was another busy week, with a lot of data, moving parts, and ultimately more volatility. Some of that volatility was expected, particularly given September’s history as one of the more challenging months for markets. Over the past five years, the S&P 500 has averaged a 2.7% decline in September, followed by stronger performance in October and November, which have averaged gains of 2.8% and 3.9%, respectively.¹ We believe that pattern could repeat this year, particularly with the economy continuing to hold up well.

Investors are closely watching oil prices, bond yields, and inflation, all of which have been running higher than expected. Oil prices are up roughly 50% from their July low, although they remain nearly 10% below the April highs. The rise in energy prices is an important factor behind the recent move higher in Treasury yields, with the 10-year reaching 5.00% for the first time since 2023.² Since the 10-year touched the 5% mark we have talked about for some time now and remains there for an extended period, we could see some investors shift from equities and cash into bonds, particularly more conservative investors. However, we continue to believe the underlying momentum in both the economy and stock market remains strong. Better-than-expected earnings continue to provide important support for equities, and we expect that trend to persist.

2. Inflation Remains Elevated, but Progress Continues CPI and PPI came in largely in line with expectations this week, although inflation remains above the Fed’s 2% target. Core PPI was 4.6%, while core CPI came in at 2.4%, down from 2.5% the prior month and the lowest level since 2021.³ While the headline numbers remain heavily influenced by higher oil prices, the continued improvement in core CPI is an encouraging sign that inflation is moving in the right direction. A resolution to the Iranian conflict could also lead to a meaningful decline in oil prices, which would provide additional relief to inflation.

The market is now pricing a 91% probability of a rate hike at the upcoming FOMC meeting this week, with the market implying an additional rate hike by December.⁴ However, a lot can change between now and year-end, particularly if energy prices begin to decline. We do not believe another 25 or even 50 basis points would derail the underlying strength of the economy, particularly while credit markets remain healthy. Credit default swaps across both high yield and investment grade remain tight, suggesting that credit stress is still contained. As long as that remains the case and economic momentum holds up, we believe the market can continue to chug along and would use any September volatility as an opportunity to add to equities.

3. Looking Ahead Next week will bring several important economic reports, including retail sales, industrial production, and leading economic indicators, but the main focus will be Wednesday’s FOMC meeting. With markets pricing a high probability of a rate hike, investors will also be listening closely to the Fed’s commentary and the new Fed Chair’s outlook on the economy and inflation. While the path of rates remains important, we would not be overly concerned about another 25 basis points given the underlying strength of the economy. Earnings growth may not repeat last quarter’s 52% pace,⁵ but we believe 15%–20% growth remains achievable this year and next, providing an important fundamental support for equities.

We are also encouraged by the breadth of market performance. Technology remains a barbell, with software beginning to pick up, semiconductors continuing to perform well, and the Magnificent 7 starting to regain momentum. At the same time, financials, energy, and materials are also participating. We believe this supports our strategy of focusing on quality, blue-chip companies, and using periods of September volatility to add to positions when valuations become more attractive.

4. Fixed Income U.S. Treasury yields rose sharply across the curve last week as the August PPI and CPI releases prompted market participants to adjust their expectations of future Fed policy. Rate futures are now assigning roughly a 91% chance of a rate hike at this week’s FOMC meeting. By Friday’s close, the 2-, 10-, and 30-year yields were higher by 26, 19, and 11 basis points, respectively.⁶

Despite the move in the rates market, credit markets continue to show resilience, with modest widening evident across both investment-grade and high-yield segments. Investment-grade spreads moved 1 basis point wider to +116, while high-yield spreads expanded 2 basis points to +302. High-yield spreads sit just 9 basis points above their 5-year tights of +293, last reached in January 2025. In the tax-exempt market, municipal yields followed Treasuries higher, as yields increased between 19-23 basis points across the curve.⁷

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Return for Selected Indices⁸

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.

Sources:

1. Bloomberg: As of September 14, 2026 ↩︎
2. Bloomberg: As of September 14, 2026 ↩︎
3. Bloomberg: As of September 10, 2026 ↩︎
4. Bloomberg: As of September 14, 2026 ↩︎
5. Bloomberg: As of September 14, 2026 ↩︎
6. Bloomberg: As of September 14, 2026 ↩︎
7. Bloomberg: As of September 14, 2026 ↩︎
8. Bloomberg: As of September 14, 2026 ↩︎

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