BY STRATEGIC ADVISERS INVESTMENT TEAM — SEPTEMBER 2026
Market Conditions
The U.S. economy continues to show signs of growth, with Gross Domestic Product (GDP) rising in the second quarter. Additionally, the end of earnings season delivered solid results with 87% of reporting companies exceeding earnings per share estimates and 77% reporting revenue above expectations.1 On the other hand, headline inflation ticked higher in August, largely driven by gasoline prices.2
- The U.S. economy expanded. Real GDP increased at an annual rate of 1.5% in the second quarter largely driven by positive consumer and business spending. 3
- The most recent jobs report exceeded expectations. The U.S. economy added 162,000 jobs in August with most job gains appearing in restaurants and bars, as well as local government education. The unemployment rate was unchanged at 4.1%, suggesting a stable labor market.4
- The outlook for the manufacturing and services industries is strong. Economic activity in the manufacturing sector expanded for the eighth month in a row. Additionally, the services sector remained in expansionary territory, driven by seasonal businesses such as accommodation and food services.5
What it may mean for your portfolio
U.S. and international stocks rose in August, likely lifted by robust earnings growth and fewer military strikes in the Middle East. The U.S. economy also continued to show signs of resilience, with strong job creation in August. Surveys of manufacturers and services companies pointed to positive outlooks as well.
While the economy grew, interest rates around the world rose over the summer, leading to some volatility for bond investors. The rise in interest rates could be attributed to several factors, including higher levels of government debt, the potential for increased government spending, concerns around inflation, and a stronger economic growth outlook.
Higher interest rates may lead to more moderate economic expansion. As rates rise, the borrowing costs for businesses and consumers also increase. However, with the economy on solid footing, the pace of growth may slow, but is not expected to go into contraction.
Furthermore, concerns about an imminent debt crisis seem unlikely, as both stock and bond markets have moved in an orderly manner over the last few months. For instance, most U.S. investment-grade bonds have delivered positive returns over the last 12 months despite recent volatility. Going forward, bond investors may benefit from investing in bonds with even higher yields now available. These higher bond yields are currently above yields available on many short-term investments.
Finally, it may help to keep the recent rise in bond yields in context. While 10- and 30-year yields on U.S. bonds are now higher than they have been in some time, they are still below their historic averages, and well below their all-time peaks.6 Volatility in stock and bond markets can often feel unsettling. However, overreacting to near-term volatility may lead investors to miss out on potential long-term gains.
Outlook
The U.S. is experiencing economic expansion, as seen in numerous recent data releases such as GDP, manufacturing surveys, and consumer spending. Corporate profits were also solid in the second quarter, and the outlook for profit growth appears constructive into 2027. As a result, ongoing earnings growth may help to support stock prices over time.
In terms of potential risks, the current inflation level remains above the Fed’s long-term target. To help combat persistent inflation, the Federal Open Market Committee (FOMC) voted to increase its target overnight interest rate at the Fed’s September meeting.7 Higher borrowing costs have historically often led to more moderate consumer and business spending. However, with the economy showing ample evidence of growth, this rise in rates is unlikely to lead to an economic contraction in the near-term.
Finally, developments in the Middle East are still top of mind. Ongoing military tensions remain uncertain, which could impact oil prices and global trade. We believe the risk of an imminent recession is still low. However, bouts of volatility are likely to occur. We are closely monitoring and researching these watch areas and are prepared to act as the situation evolves.
Stick with your plan and stay invested
Market conditions can change quickly. We aim to guide clients through these varying conditions, which have largely led to strong performance over the past three years. Historically, the market has shown resilience even when news headlines may feel discouraging. As a result, we have maintained healthy exposure to stocks, even during bouts of market volatility. We believe that staying invested and managing risk through evolving market conditions can ultimately help you reach your financial goals in the long run.
