Market Commentary 9/30/2026
With inflation sticking above the Federal Reserve’s target and the economy running stronger than expected, the Fed hiked rates this quarter. Rising interest rates and the bond markets have been in the headlines, with increasing rates resulting in the Bloomberg US Aggregate Bond Index dipping 3.5% during the quarter. The 10-year US Treasury yield ended at 5.29%, its highest rate in about two decades. Equity markets were fairly calm despite the higher rates. The S&P 500 Total Return Index gained 2.3% in the third quarter, though the average stock in the index actually lost 1.9%.
Fixed Income provides diversification. A core role for a portfolio’s bond allocation is to guard against equity market drawdowns and provide a source of liquidity to rebalance equities (buying low) during those drawdowns. Especially at today’s rates, it does more than that, though. For the first time in many years, with most interest rates creeping into the 5-6% range, bonds are starting to provide meaningful income. Bonds may start to feature more in asset allocation discussions. Do we shift wholesale out of equities into fixed income? No, but it’s important to recognize that bonds are doing more to earn a place as a return generator in a diversified portfolio than they did previously.
Economic data is giving mixed signals. Consumer sentiment readings are lower today than they were during the global financial crisis and the pandemic. On the other hand, employment data and GDP are stable and corporate earnings are strong. Uncertain economic readings aren’t new. That’s the base state of the world. Our investment philosophy is a response to the inherent unpredictability in markets. Today we suggest a diversified portfolio. Tomorrow we suggest a diversified portfolio. On the surface this can be read as just a static set of asset allocation percentages, but important work happens between today and tomorrow. That’s where the portfolio is rebalanced, losses are harvested for taxes, and the heavy lifting of the financial plan works to keep more of the money you earned in your pocket. These are things investors can control without having to guess what the Federal Reserve will do or how interest rates will gyrate. Process beats prediction.
Midterm elections are around the corner. That means you can’t watch your American League Central Division Champion Cleveland Guardians without sitting through a slew of political ads. Our take on politics hasn’t changed. Vote in the booth, not with your portfolio.
Fairway has been busy beyond the investment markets. Jake Yeager got married. Congratulations Jake! Ben Karlo welcomed a baby boy, Grant. Congratulations Ben! You may have also seen Fairway names quoted in articles from MarketWatch and MSN. Follow Fairway on LinkedIn and Facebook for regular updates on firm activities and accolades.
Matthew M. Garrott, CIMA®
Director, Investment Research
