Market Commentary – September 2026

The third quarter was a volatile yet generally positive period for Wall Street. The NASDAQ and the S & P 500 each advanced, while the Dow and the small caps of the Russell 2000 lagged. During the third quarter, the major indexes reached record levels in August and early September, although that favorable performance masked an underlying shift to large technology and AI companies, while other sectors largely underperformed. The divergence between benchmark indexes and the broader market indicates that the quarterly market gain was narrowly driven and not representative of the average large company. Overall, the stock market in the third quarter was dominated by large-cap technology and AI stocks, while market breadth deteriorated. Energy was the strongest-performing sector. Treasury yields rose sharply. Higher crude oil prices revived inflation concerns. Corporate earnings remained strong. All of these factors helped create a scenario where growth of major market indexes was not indicative of broader stock market health.  Energy, information technology, health care, and communication services were the only market sectors to close Q3 in positive territory. The remaining sectors ended the third quarter in the red, with utilities, industrials, and real estate falling the furthest.

*Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark the performance of specific investments.

It was a challenging month for the U.S. bond market, defined by rising yields across the curve, pressure on long-term Treasuries, and modestly negative total returns in most fixed income sectors. Bonds reacted to the Federal Reserve rate hold, cooling inflation that remained above the Fed's target, geopolitical hostilities that influenced oil prices, and the recent trade fallout between the U.S. and Canada.

Inflation in August was middling as headline measures had clearly cooled from the post-pandemic peaks, but the core inflation remained above the Federal Reserve's 2.0% target. August price trends remained steady and persistent, showing progress toward the Fed's target but not enough to prompt a reduction in interest rates.

According to FactSet, with 97% of S&P 500 companies reporting, 86% beat earnings per share (EPS) estimates, while 77% reported positive revenue above expectations. Through the second quarter, the earnings growth rate for the S&P 500 was 52.0%, which is the highest earnings growth rate reported by the index since the second quarter of 2021. Within the S&P 500, all 11 sectors reported positive revenue growth with energy, information technology, and communication services delivering double-digit revenue growth.

August 2026 was a tight, high-priced month for crude oil. Prices per barrel held in the mid $80s to low $90s, while U.S. retail gasoline prices pushed above $4.00 per gallon nationally late in the month. Reduced crude shipments through the Strait of Hormuz, high summer driving demand, and tight domestic fuel inventories supported higher prices. The retail price of regular gasoline was $4.085 per gallon on August 24, $0.011 lower than the price a month earlier but $0.938 higher than the price a year ago. The dollar showed resilience in August, closing the month marginally lower, despite a myriad of domestic economic factors, including a slowing labor market and persistent inflationary pressures. After reaching an all-time high of $5,595 per ounce in January, gold prices spiraled downward, trading between $3,970-$4,500 per ounce, as renewed Middle East tensions fueled inflation concerns, while hawkish comments from Federal Reserve Chair Kevin Warsh strengthened expectations for a September rate hike.

Latest Economic Report

• Employment: Job growth exceeded expectations in August as employment rose by 162,000 after increasing 21,000 (revised) in the previous month. The change in employment for June was revised up by 11,000, from 20,000 to 31,000, and the change for July was revised up by 44,000, from -23,000 to +21,000. With these revisions, employment in June and July combined was 55,000 higher than previously reported. The unemployment rate was 4.1% in August, unchanged from the previous month's rate but 0.2 percentage point lower than the rate from a year earlier. The number of unemployed persons in August was 7.0 million, which was 115,000 more than the total from the previous month and nearly 350,000 above the August 2025 estimate. The number of long-term unemployed (those jobless for 27 weeks or more), at 1.9 million in August, rose 159,000 from the July rate and accounted for 27.0% of all unemployed persons. The total number of long-term unemployed in August was essentially unchanged from a year earlier. The labor force participation rate, at 61.6% in August, was up 0.2 percentage point from the July figure but 0.7 percentage point below the rate from a year earlier. The employment-population ratio in August, at 59.1%, increased 0.2 percentage point from July but was 0.5 percentage point below the August 2025 estimate. In August, average hourly earnings rose by $0.10, or 0.3%, to $37.75. Over the year, average hourly earnings have increased by 3.1%. The average workweek edged up by 0.1 hour to 34.4 hours in August from July.
• FOMC/interest rates: As expected, the Federal Open Market Committee (FOMC) raised the federal funds target rate range by 25.0 basis points to 3.75%-4.00%. The unanimous decision marked the first rate hike in three years. The statement indicated that the rate increase is intended to support a timelier return to the Committee's 2.0% goal. The Committee noted that inflation remained elevated. While economic activity was solid, domestic spending proved resilient despite elevated uncertainty due to geopolitical developments. Based on projections, it appears that at least one more rate hike is in the offing this year.
• GDP: The rate of economic expansion was steady in the second quarter of 2026, with gross domestic product (GDP) rising 2.2%, according to the Bureau of Economic Analysis. In the first quarter, GDP rose 2.5% (revised). Compared to the first quarter, the decrease in GDP in the second quarter reflected decelerations in private investment (7.2% to 4.6%), exports (13.9% to 5.0%), and government spending (+4.7% to -1.0%). Consumer spending accelerated from 0.5% in the first quarter to 3.8% in the second quarter. Imports, which are a negative in the calculation of GDP, rose from 11.5% in the first quarter to 12.6% in the second quarter.
• Inflation/consumer spending: According to the latest Personal Income and Outlays report, personal income rose 0.2% in August, while disposable (after-tax) personal income increased 0.3%. Personal consumption expenditures (PCE) increased 0.9%. Consumer prices, as measured by the PCE price index, increased 0.3% in August. Excluding food and energy, the PCE price index also ticked up 0.2%. From August 2025, the PCE price index rose 3.4%, lower than the increase (3.7%) for the 12 months ended in July. Excluding food and energy, the PCE price index increased 3.0% from August 2025 (3.3% for the year ended in July).
  • The Consumer Price Index (CPI) advanced 0.4% in August and 3.4% over the last 12 months, unchanged from the 12 months ended in July. Gasoline rose 3.9% in August, accounting for over one third of the overall monthly increase. Energy prices increased 2.1% over the month. Shelter prices rose 0.3% in August after rising 0.1% in July. Prices for food increased 0.1% in August. Prices less food and energy rose 0.3% in August and 2.4% over the year, following a 2.5% increase over the 12 months ended in July. Energy prices increased 16.3% for the 12 months ended August. Prices for food increased 2.7% over the last year.
  • The latest data reveals that the Producer Price Index increased 0.4% in August, up 0.3 percentage point from the revised July estimate. Producer prices increased 5.4% over the last 12 months. In August, prices for goods rose 1.1% from the previous month. Prices for services increased 0.1% in August. For the year, producer prices for goods rose 7.7%, while prices for services advanced 4.5%. Excluding foods and energy, prices increased 0.2% in August and 4.6% over the year. Excluding foods, energy, and trade services, producer prices moved up 0.3% in August and 4.7% since August 2025.
• Housing: Existing home sales decreased 2.0% in August and 1.2% from a year ago. Inventory of existing homes for sale in August, at a 4.9-month supply, was up from the prior month's estimate of 4.6 months. The median sales price in August was $429,100, down from the July estimate of $436,400 but greater than the August 2025 price of $422,400. Sales of existing single-family homes declined 1.9% in August and 1.1% from August 2025. The median sales price for existing single-family homes in August was $434,800, down from the previous month's price of $442,500 but higher than the August 2025 price of $427,700. According to Freddie Mac, the 30-year fixed-rate mortgage averaged 7.03% as of September 24^th. That's up from 6.30% a year earlier.
  • The most recent data shows sales of new single-family houses in August 2026 were 6.4% above the July rate but 2.0% below the August 2025 estimate. Inventory sat at a supply of 8.5 months, which was 5.6% under the July rate and unchanged from August 2025. The median sales price of new single-family homes sold in August was $393,700, 0.4% above the July price of $392,200 but 5.8% below the August 2025 price of $417,900. The average sales price of new single-family homes sold in August was $478,700, 9.1% below the July price of $526,400 and 8.8% below the August 2025 price of $525,100.
• Manufacturing: Industrial production (IP) was unchanged in August after increasing 0.2% in July. Manufacturing output decreased 0.3% in August. Mining ticked up 0.1% and utilities increased 1.8%. Total IP in August was 1.4% above its year-earlier level.
• According to the latest report from the Census Bureau, new orders for durable goods in August were virtually unchanged from the prior month. This followed a 0.9% July increase. Excluding transportation, new orders increased 0.3%. Excluding defense, new orders increased 0.1%. Transportation equipment, down three of the last four months, declined 0.6% in August.
• Imports and exports: S. import prices increased 0.7% in August following a 0.3% decrease in July. Higher prices for nonfuel imports more than offset lower prices for fuel imports in August. Prices for U.S. exports advanced 0.6% in August after falling 1.4% the previous month. Imports advanced 7.0% for the 12 months ended in August 2026, the largest 12-month increase since the prices rose 7.7% for the 12-month period ended August 2022. Export prices rose 8.6% over the 12-month period ended in August.
• International markets: European equity markets began the third quarter of 2026 from a position of strength with several notable indexes nearing or surpassing record highs. However, the third quarter proved volatile with a rotation between cyclical growth, financials, technology, and defensive sectors. Throughout the quarter, European equity markets were sensitive to energy prices, European Central Bank monetary policy, Middle East developments, corporate earnings, and AI/technology performance. Asian equity markets also experienced volatility in the third quarter. Second-quarter momentum waned as technology stocks, particularly semiconductor shares, endured significant corrections. By the end of September, the STOXX Europe 600 Index fell 1.4% for the month and 0.4% for the third quarter; the United Kingdom's FTSE fell 1.3% from July but increased 1.3% in the third quarter; Japan's Nikkei 225 Index gained 3.8% for the month but declined 5.3% in Q3; and China's Shanghai Composite Index dropped 2.5% in August and 6.6% for the quarter.
• Consumer confidence: The Consumer Confidence Index fell by 6.7 points to 81.9 in September, down from 88.6 in August. The Present Situation Index, based on consumers' assessment of current business and labor market conditions, retreated 7.9 points to 109.3. The Expectations Index, based on consumers' short-term outlook for income, business, and labor market conditions, fell 5.9 points to 63.6, marking its third consecutive monthly decline.

Eye on the Year Ahead

The Federal Reserve meets at the end of October, the result of which may be another interest rate hike.