“You can’t predict. You can prepare.” – Howard Marks
September was a negative month across the board for the stock market indexes we follow, but with a notable dispersion of returns. The S&P 500, MSCI World, and MSCI Emerging Markets had modest losses in September. International, Small Cap, Midcap, and the blue chip Dow Industrial indexes all suffered substantial losses. Higher interest rates led to a 2.60% loss for the Aggregate Bond Index. The US Dollar Index rose 2.24% and the commodity index was almost flat.
All data as of 10/01/2026, Source: Wells Fargo Investment Institute. An index is not managed and not available for direct investment. Past performance is not a guarantee of future results. [Wells Fargo Investment Institute, Inc. is a registered investment advisor and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.]
In our experience, September tends to be a hard month for investor returns. In fact, according to Jeffrey Hirsch and the Stock Trader’s Almanac, since 1950, data show September as the worst month for major market indexes. Of course, that doesn’t mean the markets are negative every September. For example, 1995 and 1996 saw strong returns. On the flip side, September 2000, 2001, and 2002 were not good, posting -5.37%, -8.08%, and -10.99% respective returns. It is notable that the mid-1990s were in the middle of a secular bull market that started in 1982 and continued through the first few months of 2000, and the early 2000s are commonly referred to as the “tech wreck.”
Last month we discussed inflation and the bond market. This month we will continue that discussion before moving on to the equity markets. As always, we have some thoughts.
The Bond Market
Chart #1 is the same chart of the 10-year US Treasury Bond we showed last month, just updated to show the activity over the past few weeks. Over that time, the yield has continued to move higher, peaking above 5.30%. The quick run-up leads us to believe that, in the short term, we could see a reasonable retreat in the yield. Longer term, we expect rates to either stabilize around these levels or keep moving higher.
While we are not arrogant enough to believe we can predict where interest rates will be in the coming months or years, we are confident enough to believe we know where to look for clues. Right now, we are watching:
- The Iran War and the global supply of oil and refined gasoline/diesel: The longer this conflict goes on, the longer there will be a war premium built into the price of oil, and thus the price of gasoline. Because energy costs permeate most of what we consume, the longer this conflict goes on, the more likely inflation is to run hotter than the Federal Reserve’s 2% target.
- Trade and Tariff Policy: Current US policy, which includes higher tariffs on imported goods, has led to higher prices for both industrial producers and consumers. Like the war, this is inflationary.¹
- Corporate supply competing with US Treasuries: The buildout of all things AI-related has led to a substantial increase in the issuance of corporate debt. Based on what Corporate America is telling us, the increase in capital expenditures is likely to grow stronger over the next few years.
- Global Interest Rates: Japan has been leading global yields higher.
- US Government deficits and the term premium: Total Federal Government debt reached $40 trillion earlier this year, and the yearly deficit continues to be close to $2 trillion, or approximately 6% of US GDP. More bond issuance means more buyers are necessary of the extra supply.
- Sticky inflation: It has been more than 5 years and counting that the US inflation rate has been above the Fed’s 2% target. Even if the Middle East conflict were to stop this weekend, we have no reason to believe inflation would quickly revert to the 2% level.
Chart #1: www.stockcharts.com Data 02/20/2023 – 10/06/2026 as of 10/06/2026. An index is not managed and not available for direct investment. MA 50 = 50-day moving average MA 200= 200-day moving average
The recent rise in interest rates has pushed bond yields higher. While that’s ultimately a positive development for long‑term income, it also means the current market value of many existing bonds has moved lower. These price declines can show up on monthly statements and understandably catch investors off guard, especially when the broader headlines are focused on improving yields. This adjustment is a normal part of how bond math works: when new bonds are issued at higher rates, older bonds with lower coupons temporarily become less valuable in the market. That can look unsettling on paper, but it doesn’t change the underlying cash flow you’re scheduled to receive.
For investors who own individual bonds with the intention of holding them to maturity, the market value only tells part of the story. A bond’s contractual cash flows don’t change just because interest rates move. For example, if you purchased a $100,000 bond paying $4,000 of annual interest and maturing in 10 years, a rise in rates might temporarily push its market value down to $95,000, creating an unrealized loss on paper. Yet as long as the issuer continues to meet its obligations, the bond will still pay the same interest every year and return its full $100,000 at maturity. The price may fluctuate, but the income and principal you’re scheduled to receive remain intact.
Why Bond Price Fluctuations Don’t Change Your Cash Flow
Market prices move—cash flows don’t. Even if a bond’s value dips on your statement, the interest payments and maturity value remain the same as long as the issuer stays healthy.
Unrealized losses are temporary. A lower price today doesn’t affect the interest you receive or the principal you’re scheduled to get back at maturity.
Rising rates = lower prices. This is normal bond behavior and not a sign that your bond is “in trouble.”
Holding to maturity protects your outcome. If your plan is to hold the bond, short-term price swings are simply noise, not a change in your long-term return.
Wall Street’s Wall of Worry (2)
As we write this, both the S&P 500 and the tech-heavy NASDAQ indexes are at or just below their all-time highs. Yet, as we approach third-quarter reporting season for publicly traded companies, we are hearing a lot of concern among stock market investors. Some of this comes from our clients in meetings, but some of this is in the media – both traditional news sources and the business media. Among the concerns are the Middle East conflict, high oil and fuel prices, higher interest rates, and AI and the AI spending boom.
All legit concerns in our opinion. Here’s what we are watching:
- Is the US Economy more resilient to higher interest rates than in the past? Maybe. According to ICE Mortgage Technology, 51.5% of active US mortgages have rates under 4%.³ An additional 43% have no mortgage.⁴ In our opinion, this is very good for a large percentage of consumers. On the other hand, this puts pressure on the homebuilding sector and related industries, as well as renters and potential new homeowners.
- Is the Fed taking the punchbowl away from the party? This concern is not related to the quarter-point (25bps) rate increase in September, but more about the direction of where short-term rates are ultimately headed. If last month’s action was the start of a trend higher over the next few years, this could become an issue for the stock market.
- Can the AI buildout and capital expenditures continue at the current pace? Only time will tell if the forecasted expenditures actually happen.
- What effect will AI have on the global economy? This is a longer-term question related to both employment and company earnings.
We think it is important to remember that the stock market doesn’t only rise when everything looks perfect. Historically, markets can and have advanced while investors are busy worrying about issues like interest rates, inflation, elections, geopolitical tensions, recessions, corporate earnings slowdowns, or whatever the current narrative happens to be. Each worry becomes another “brick” in the wall of worry. As those concerns are gradually resolved – or simply fail to materialize – the market pushes upward. We believe the concept is a reminder that uncertainty is a permanent feature of investing, not a signal to abandon long‑term strategy. In fact, a healthy amount of skepticism often supports markets because it prevents excessive euphoria and keeps expectations grounded.
Chart #1: www.stockcharts.com Data 03/06/2023 – 10/09/2026 as of 10/09/2026. An index is not managed and not available for direct investment. MA 50 = 50-week moving average MA 200= 200-week moving average
Final Thoughts
As we step back from this month’s themes, a familiar pattern emerges: the stock market continues to climb the Wall Street “wall of worry,” even as legitimate questions linger beneath the surface. Rising yields have pressured bond prices in the short term, but they’ve also strengthened the long‑term income profile for investors. And when more than half of U.S. homeowners carry mortgage rates under 4% — with another 43% having no mortgage at all — a large portion of consumers remain well‑positioned to weather higher rates. At the same time, this dynamic creates challenges for homebuilders, renters, and new buyers, reminding us that interest‑rate resilience is uneven across the economy.
We’re also watching the Federal Reserve closely. A single 25‑basis‑point hike in September isn’t the concern; the bigger question is whether it marks the beginning of a multi‑year trend toward higher short‑term rates. If so, that could influence market behavior. And of course, the AI buildout remains a defining force — both in terms of corporate capital spending today and the longer‑term implications for productivity, employment, and earnings. These are real uncertainties, but they’re also part of the normal backdrop of investing. Every cycle brings its own set of worries, and yet markets have historically advanced not in the absence of concerns, but alongside them.
We believe the takeaway for long‑term investors is straightforward: staying disciplined matters. The environment will continue to evolve, headlines will continue to shift, and new questions will replace old ones. But thoughtful planning, diversified portfolios, and a steady focus on long‑term goals remain the most reliable way to navigate periods of change. As always, our opinions are strongly but lightly held. We’ll keep watching these developments closely and adjust where appropriate, while staying committed to the investment plans designed to carry you through cycles, not moments.
As always, we’re here to help you navigate the path ahead—whether it’s updating your plan, rebalancing your portfolio, or thinking through the next chapter of your financial journey. If you have questions or want to explore your options, don’t hesitate to reach out.
If you would like to discuss your current strategy, or how to build such a strategy, Contact Our Team Of Financial Advisors Today!
Sources:
¹ The Federal Reserve is mandated by Congress to promote price stability and maximum employment, meaning it aims for low, stable inflation and a healthy labor market. All interest‑rate decisions are made with those dual objectives in mind, balancing economic growth with long‑term financial stability.
² The “Wall Street Wall of Worry” is a long‑standing idea that the stock market often climbs higher despite a steady stream of concerns, risks, and negative headlines.
³ Homeowner mortgage rates: Here’s the breakdown of U.S. borrowers (CNBC.com)
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Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.
Asset allocation and diversification are investment methods used to help manage risk. They do not guarantee investment returns or eliminate risk of loss including in a declining market.All investing involves risks including the possible loss of principal invested. Past performance is not a guarantee of future results.
Index returns are not fund returns. An index is unmanaged and not available for investment.
Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted index of 30 “blue-chip” industrial U.S. stocks.
S&P 500 Index: The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock’s weight in the Index proportionate to its market value.
S&P Midcap 400 Index: The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between the S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.
S&P Small-Cap 600 Index: The S&P SmallCap 600 Index consists of 600 domestic stocks chosen for market size, liquidity (bid-asked spread, ownership, share turnover and number of no trade days) and industry group representation. It is a market value-weighted index (stock price times the number of shares outstanding), with each stock’s weight in the index proportionate to its market value.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.
MSCI World Index: The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance.
MSCI EAFE® Index: The MSCI EAFE Index is designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada.
MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
The CRB (Commodity Research Bureau) Index measures the overall direction of commodity sectors. The CRB was designed to isolate and reveal the directional movement of prices in overall commodities trades.
Bloomberg Barclays U.S. Aggregate Bond Index: Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based measure of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
NASDAQ Composite Index: The NASDAQ Composite Index measures the market value of all domestic and foreign common stocks, representing a wide array of more than 5,000 companies, listed on the NASDAQ Stock Market.
Russell 2000® Index: The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents.
U.S. Dollar Index (USDX) measures the value of the U.S. dollar relative to majority of its most significant trading partners. The index is similar to other trade-weighted indexes, which also use the exchange rates from the same major currencies.
Technical analysis is only one form of analysis. Investors should also consider the merits of Fundamental and Quantitative analysis when making investment decision. Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future.
Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations.
Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility.
Investments in fixed-income securities are subject to market, interest rate, credit and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the bond’s price. Credit risk is the risk that the issuer will default on payments of interest and/or principal. The risk is heightened in lower rate bonds. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.
Investing in commodities is not suitable for all investors. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. The prices of various commodities may fluctuate based on numerous factors including changes in supply and demand relationships, weather and acts of nature, agricultural conditions, international trade conditions, fiscal monetary and exchange control programs, domestic and foreign political and economic events and policies, and changes in interest rates or sectors affecting a particular industry or commodity. Products that invest in commodities may employ more complex strategies which may expose investors to additional risks, including futures roll yield risk.
Robert I. Cahill, Partner
Rob.Cahill@wfafinet.
Jonathan D. Soden, Managing Partner
Jon.Soden@wfafinet.com
Cassandra Queen, CFP®,ChFC®, Senior Wealth Planner
Cassandra.Queen@wfafinet.com
Susan C Schupp, MBA, Senior Wealth Planner
Susan.Shupp@wfafinet.com