Economic Strength Keeps the Outlook Constructive

1. Economic Momentum Remains Strong The latest economic data continue to point to a resilient U.S. economy with solid underlying momentum. The Atlanta Fed’s GDPNow estimate has increased to 4.7%,¹ while factory orders rose 0.9%, ahead of expectations for 0.7%. Durable goods orders also remained healthy, increasing 1.1% in line with estimates.² While the ISM Manufacturing Index came in slightly below expectations at 54.6, it remains comfortably above 50 for the eighth consecutive month, signaling continued expansion in the manufacturing sector. Services activity remains even stronger, with the ISM Services Index coming in above expectations at 55.4 and marking its 26th consecutive month above 50.³

The labor market also continues to show signs of stability rather than deterioration. Weekly jobless claims came in at 206,000, bringing the four-week moving average to 207,250.⁴ Perhaps most encouraging, data points are the continued improvement in unit labor costs and productivity. Second-quarter unit labor costs increased just 1.2%, down from 1.3% in the prior quarter, while productivity increased 1.4%.⁵ The combination of moderating labor costs and rising productivity is particularly constructive for corporate profitability, as companies can continue to grow output without seeing a corresponding increase in labor expenses.

2. Fed Officials Signal a Patient Approach Federal Reserve officials continued to strike a relatively dovish tone last week, with Governor Christopher Waller and New York Fed President John Williams both emphasizing that monetary policy remains data dependent. Importantly, neither indicated that higher interest rates are necessary at this time, suggesting the Fed is comfortable maintaining its current stance while it evaluates incoming economic and inflation data.⁶

Williams also offered some perspective on the recent rise in rates, noting that stronger economic growth is contributing to higher yields, while much of the remaining inflation pressure appears to be tied to factors such as tariffs and higher energy prices.⁷ If these sources of inflation prove temporary, the Fed may have less reason to respond with additional rate hikes.

The consumer remains another important piece of the growth equation. The ISM Services Index has now remained above 50, indicating expansion, for 26 consecutive months, providing evidence that activity across the service economy remains healthy. With consumer spending accounting for roughly 70% of U.S. GDP,⁸ we continue to root for the consumer to remain resilient. A healthy consumer, combined with strong AI-related investment and an expanding services economy, provides a solid foundation for continued economic growth and supports our constructive outlook for equities.

3. Financials Benefit From a Healthy Economy Financials have begun to perk up as investors recognize the benefits of a healthy underlying economy. Banks sit at the front line of several important areas of economic activity, including consumer spending, lending, and the continued strength in M&A. Bank of America CEO Brian Moynihan recently highlighted the resilience of the consumer, noting that delinquency rates and net charge-offs remain at historically low levels, suggesting that consumers continue to have the capacity to spend while maintaining relatively healthy balance sheets. Additionally, spending among lower-income households increased 5.4% year over year in July, while after-tax wage growth for those households reached 5.2%.⁹

The combination of resilient consumers, strong credit quality and elevated corporate activity creates a favorable environment for financials. While technology remains an important area of the market and we continue to see attractive opportunities within the sector, we believe there are increasingly compelling places to invest outside of technology. The recent strength in financials is another indication that market leadership is broadening.

4. Looking Ahead We expect some volatility, as is typical for September, particularly with earnings season largely behind us and an important week of inflation data ahead of the Fed’s upcoming meeting. September has historically been the weakest month of the year, with the S&P 500 averaging a 2.7% decline over the past five years. By comparison, October and November have been much stronger, averaging gains of 2.8% and 3.9%, respectively.¹⁰ We would view any near-term volatility as an opportunity to add to equities. At the same time, if the 10-year Treasury yield were to move above 5% and remain there, fixed income would begin to offer a more compelling alternative.

For now, the economy continues to chug along, supporting our constructive outlook. We continue to favor a barbell approach, with exposure to technology, including both semiconductors and software, alongside financials, industrials tied to the data center buildout, materials, and Brazil. This week, investors will focus on earnings from Adobe and Oracle, while Thursday’s PPI report and Friday’s CPI report will provide important updates on the inflation outlook. With the Fed remaining data dependent, these readings will be particularly important in shaping expectations for interest rates and the broader market.

5. Fixed Income U.S. Treasury yields moved higher across the curve last week as markets digested the August nonfarm payrolls report. By Friday’s close, the 2-, 10-, and 30-year yields were up 2, 6, and 4 basis points, respectively. The stronger-than-expected labor data prompted market participants to adjust their expectations of future Fed policy, with futures not assigning roughly a 65% change of a rate hike in September.¹¹

Credit markets modestly weakened last week, with widening evident across both the investment-grade and high-yield segments. Investment-grade spreads moved 2 bps wider to +115, while high-yield spreads expanded 1 basis point to +301. In the tax-exempt market, municipal yields followed treasuries higher, albeit a stronger pace as yields increased between 8-17 basis points across the curve.¹²

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Return for Selected Indices¹³

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. Federal Reserve Bank of Atlanta: As of September 3, 2026 ↩︎
2. Bloomberg: As of September 2, 2026 ↩︎
3. Bloomberg: As of September 8, 2026 ↩︎
4. Department of Labor: As of September 3, 2026 ↩︎
5. Bloomberg: As of September 3, 2026 ↩︎
6. CNBC: As of September 3, 2026 ↩︎
7. CNBC: As of September 2, 2026 ↩︎
8. Barrons: As of April 8, 2026 ↩︎
9. Bank of America: As of August 11, 2026 ↩︎
10. Bloomberg: As of August 28, 2026 ↩︎
11. Bloomberg: As of September 8, 2026 ↩︎
12. Bloomberg: As of September 8, 2026 ↩︎
13. Bloomberg: As of September 8, 2026 ↩︎

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