Market Update: September 30, 2026
Markets remained strong through the quarter, supported by solid corporate earnings and an economy that continues to grow despite higher interest rates. One encouraging sign is that earnings expectations have generally improved along with stock prices, which gives the market a stronger foundation than price gains alone would suggest.
Economic & Market Perspective
Inflation remains one of the biggest issues for investors. It has taken longer than expected to move back toward the Federal Reserve’s 2% target, which helped push interest rates higher in September and kept the possibility of additional rate increases on the table.
The latest inflation report offered some relief. August Personal Consumption Expenditures inflation came in below expectations, which reduced near-term expectations for another Federal Reserve rate increase. Even so, longer-term Treasury yields continued to rise.
That is important because it shows investors are still concerned about longer-term inflation, government borrowing, and the overall fiscal outlook. Treasury yields also affect how other investments are valued. As the return available on relatively low-risk Treasury securities rises, investors generally expect higher returns from stocks, corporate bonds, real estate, and other investments as well. This creates a higher hurdle for riskier assets and makes valuation more important.
Portfolio Positioning
The strong market environment has created a different challenge for portfolios. Some of the areas that have performed best have also grown into larger portions of portfolios.
We have been using that strength as an opportunity to rebalance. This includes taking profits in certain positions, reducing investments that have grown beyond their intended size, and trimming areas where recent gains may be driven more by momentum than by improving business results.
The goal is not to move away from investments that have worked well. Instead, we want to maintain exposure to attractive long-term opportunities while keeping any one area from becoming too large a source of risk.
We are also finding more opportunity in bonds. Higher yields have improved the income investors can earn, but interest rates can still move quickly. We continue to favor a diversified approach rather than relying too heavily on one type of bond or one interest-rate outcome.
Our Highest-Conviction Investment Themes:
- Artificial intelligence remains one of our strongest long-term investment themes, but our focus is shifting toward how companies actually use the technology.
- We believe the biggest opportunities may come from businesses that can use artificial intelligence to lower costs, improve productivity, increase profit margins, or strengthen their competitive position. That includes both the companies building the technology and the businesses putting it to work.
- Defense also remains an important long-term theme. Governments around the world continue to increase spending on security, technology, and military modernization. We believe that can create opportunities that may last well beyond the current economic cycle.
- We are also seeing more opportunities outside the United States. American companies continue to perform well but improving earnings and more attractive valuations in some overseas markets are creating additional areas to invest. We continue to focus on specific countries, industries, and companies rather than making broad bets on entire regions.
Looking Ahead
We remain positive on the market overall, but we also believe the current environment calls for more discipline.
Corporate earnings remain supportive, and the latest inflation report was encouraging. At the same time, inflation is still above the Federal Reserve’s target, interest rates remain elevated, and another rate increase is still possible if inflation stays high.
Higher Treasury yields have also changed the investment landscape. Investors can now earn more from high-quality bonds than they could several years ago, which means stocks and other investments need to offer stronger return potential to justify taking additional risk.
For that reason, we continue to focus on strong businesses, attractive long-term themes, reasonable valuations, and well-diversified portfolios. Our goal is to stay invested where the opportunities remain attractive while keeping a close eye on concentration, interest rates, and overall portfolio risk.
Disclosures
*Data sourced from Blackrock
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