October 2026 Market Update
Equity markets delivered mixed results in September. Some major indices posted solid gains, while others finished the month in negative territory. Below are the September returns for the popular benchmarks that investors track (Data provided by Y-Charts & Commonwealth Financial Network):
- S&P 500 Index: -0.5%
- Dow Jones Industrial Average: -4.3%
- Nasdaq Composite Index: +1.9%
- Russell 2000 Index: -5.5%
- S&P Target Risk Moderate: -2%
The Fed Begins a New Rate Hiking Cycle
September’s most significant development was the Federal Reserve’s decision to raise interest rates for the first time since 2023. This move may mark the start of a new tightening cycle, one that could affect several areas of the market in the months ahead.
Many investors believe that rising rates are inherently bad for stocks. We don’t believe that is the case. In our view, rising rates tend to become a problem when they climb too far, too fast. Historically, a gradual and measured tightening cycle has been far more manageable for the market.
In an article written by Brian Sozzi on Yahoo Finance, he examined how stocks have historically responded once the Fed begins raising rates. Across the seven hiking cycles since 1988, the S&P 500 declined by an average of 4.0% in the six weeks following the first rate hike. In other words, some early weakness has been common.
The longer-term picture has been more encouraging. Six months after the first hike, the S&P 500 was up an average of 4%, and after 12 months, the average gain was 9%. Returns over that 12-month period were positive in every instance except 2022.
The path the Fed takes to reach a hiking cycle also matters. According to Adam Turnquist, CMT, at LPL Research, when a pause was preceded by rate cuts, as it was recently, the S&P 500 averaged a 7.8% gain in the 12 months following the first post-pause hike. By comparison, when the pause followed a rate increase, the average return was just 0.8%. The takeaway is simple: higher interest rates do not automatically lead to a bear market.
U.S.–China Trade: A Symbolic Step Forward, Not a Turning PointFollowing last week’s summit in Washington between President Trump and President Xi, the United States and China agreed to reduce tariffs on roughly $30 billion of imports on each side, representing about 15% of total trade between the two countries. While modest in scope, the agreement is a welcome follow-through that should ease some near-term pressure and signals that both sides remain committed to dialogue. That said, most existing trade barriers remain in place. For households, the relief may be noticeable but limited. Lower tariffs on Chinese-made toys and household goods could help ease prices heading into the holiday shopping season, though the deal’s narrow scope means its effect on overall inflation is likely to be small. Ultimately, this truce buys time rather than resolving the underlying tensions. The tariff relief runs through January, and major issues, including export controls and Taiwan, remain unresolved. |
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Our Take
Our investment thesis remains unchanged from the start of the year. We have anticipated periods of volatility, and that expectation has been built into our 2026 planning from the outset. With a busy calendar between now and the midterm elections, we will continue to monitor developments closely and keep you informed along the way.
As always, don’t hesitate to contact our team with any questions.
Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results.