Market Commentary

October 8, 2026

On average, the stock market has traded sideways leading up to the midterms, and returns in September are historically the weakest of the year. Valuations in September came under increased pressure from a renewed surge in energy prices and soaring Treasury yields. As the quarter progressed, investors flocked to the perceived safety of AI infrastructure stocks, abandoning almost everything else, especially bond proxies and rate-sensitive stocks. Only 22 percent of S&P 500 constituents outperformed the broader index in September, down from 37 percent in August and 61 percent in July.

Equity portfolios remain well diversified, as the range of potential economic outcomes is exceptionally wide. We continue to favor companies with strong, sustainable earnings growth and valuations that can withstand higher-for-longer rates, while remaining cautious on consumer-oriented groups as inflation squeezes household budgets. Higher rates have sent investors back to large-cap technology and AI stocks, which are viewed as relatively insulated from rising rates and oil prices. We believe this crowding is creating opportunities elsewhere, notably in financials, industrials, and healthcare and, selectively, in small caps. A sustainable broadening likely requires confidence that rates and oil prices are nearing a peak, along with some resolution of the Iran conflict.

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