Calendar Notes
- U.S. stock exchanges (NYSE and Nasdaq) will operate under normal trading hours on Monday, October 12, 2026 (Columbus Day / Indigenous Peoples’ Day). However, U.S. bond markets and banking institutions will be closed.
Market Overview: Stocks
Stocks navigated a volatile September, balancing persistent momentum in artificial intelligence infrastructure against hawkish monetary signals, a recent Fed rate hike, and surging energy costs from ongoing Middle East conflicts. The ongoing combination of expanding import tariffs and the war involving Iran is creating a dual squeeze—dragging down corporate profit margins while simultaneously eroding consumer purchasing power, particularly for small businesses and lower-income households. While corporate balance sheets remain fundamentally sound, macroeconomic headwinds and 25%–50% administrative tariffs continue to keep equity indices within a broader consolidated trading range.
For the month of September, the S&P 500 finished down just slightly, -0.45%, edging out its historical September average of -0.70%. Year-to-date, the index is up 11.08%, still on track to hit 4 years in a row of positive double digit returns for the index. Tech sector leaders remain the core engine of market earnings, while broader index participation is being held back by rising interest rates, surging input costs and increasing tariffs.
On the fundamental side, mega-cap tech leaders continue to fund heavy capital expenditures directly out of robust free cash flow rather than short-term debt. Additionally, while Supreme Court-mandated tariff refunds provide a liquidity windfall for specific importers, broader corporate bottom lines are continuing to absorb persistent input and transport cost pressures heading into third-quarter earnings.
Historically, the S&P 500 has averaged a monthly return of approximately 2% in October over the past 30 years. From a seasonal perspective, October carries a reputation for heightened stock market volatility (frequently referred to as the “October Effect”). However, long-term market data also highlights October as a reliable inflection point—a “bear killer” month that frequently establishes the structural floor for a fourth-quarter rally as earnings and political clarity emerge. Additionally, count on an erratic month for stocks as the country prepares for the mid-term elections.
Near-Term Outlook: Expect increased volatility through October with heightened sensitivity to Q3 earnings guidance, energy prices, Fed policy communications, and upcoming election developments.
Take a look at the Outlook section below for more details on what events could move the markets over the short term.
Fixed Income Markets
Bond markets spent September parsing two contrasting forces: the Federal Reserve’s restrictive monetary stance following its recent interest rate hike, and Treasury Secretary Scott Bessent’s ongoing debt-management initiatives.
Fed Chairman Kevin Warsh reiterated that the FOMC will maintain a firm policy stance as long as supply-driven inflation and tariff friction persist. In contrast, Treasury Secretary Scott Bessent has continued targeted adjustments to Treasury issuance—shifting a larger proportion of government borrowing into short-term bills while conducting bond buybacks to suppress long-duration yields. However, against expanding federal deficits and sticky inflation, this strategy acts more like a temporary patch than a structural fix, keeping 10-year yields firmly above 5.0% and mortgage rates elevated.
- 10-Year U.S. Treasury Note Yield: Finished September at 5.23% (compared to 4.76% in August).
- 30-Year U.S. Treasury Bond Yield: Closed September at 5.63% (compared to 5.25% in August).
- High-Yield Credit Spread (HYCS): Finished September at 3.02% (compared to 2.91% in August).
While credit spreads remain historically tight, indicating credit markets continue to price in minimal systemic corporate distress, the recent upward tick demonstrates expanding risk premiums as markets absorb sticky tariff inflation, elevated fuel costs, and hawkish Fed policy communications heading into Q3 earnings. Something to keep an eye on.
FOMC October Preview
The Federal Open Market Committee will convene for its next policy meeting on October 27–28, 2026. With Chairman Warsh prioritizing inflation control over short-term growth, monetary policy is expected to remain firm, with the possibility of another rate hike still on the table.
Fixed Income Strategy
Given elevated short-term interest rates, investors should maintain a disciplined focus on short-duration assets. Consider allocating maturing capital toward high-grade, short-term Treasuries and FDIC-insured bank CDs with maturities under two years, securing yields in the 4.35% to 4.85% range while shielding portfolios from duration-driven price volatility. Recommend holding until maturity to ensure full return of principal.
Tax Efficiency Note: Short-term U.S. Treasuries yielding near 4.50% carry a distinct structural advantage over traditional bank CDs and money market accounts. Interest earned on U.S. Treasury securities is completely exempt from state and local income taxes across all states, delivering a superior net after-tax yield for clients in tax-paying states compared to standard bank products.
Savings Rates
Following the Fed’s recent rate increase, yields on short-term liquid reserves remain highly attractive. A substantial yield gap still persists between traditional brick-and-mortar institutions and competitive online banking platforms.
| Account Type | Average Rate (APY) | Highest Rate (APY) |
| Money Market Account | 0.63% | 4.10% |
| High-Yield Savings Account | 0.65% | 4.35% |
| 1-Year CD | 2.09% | 4.55% |
| 3-Year CD | 1.72% | 4.95% |
| 5-Year CD | 1.78% | 5.10% |
Total assets in U.S. money market funds continue to climb, currently at $7.94 trillion. Cash reserves are expected to stay elevated until short-term yields undergo a sustained decline. Certificates of deposit (CDs) and High-Yield Savings Accounts (HYSAs) remain practical instruments for maintaining liquid emergency funds. Please ensure total deposits at any single banking institution stay within the $250,000 per-person threshold for full FDIC protection.
Mortgage & Housing Market
Mortgage rates trended upward in September as bond markets reacted to the recent Federal Reserve interest rate hike and persistent long-term yield pressures. While Treasury Secretary Scott Bessent’s debt management initiatives continue, aimed at lowering long-term yields, elevated borrowing costs continue to keep homebuying activity constrained by structural affordability challenges.
According to Freddie Mac, the 30-year fixed-rate mortgage averaged 7.03% in late September, up from 6.66% recorded at the end of August. The 15-year fixed-rate mortgage averaged 6.42%, up from 5.98% last month. Moving into October, residential borrowing rates are anticipated to fluctuate between 6.85% and 7.20%, with expanding seasonal housing inventory offering buyers relatively more selection than in prior seasons, even as high monthly carrying costs suppress overall transaction volume.
Here is a look at the one-year chart of the 15- and 30-year mortgage rates from Freddie Mac.
Energy Markets
Crude oil benchmarks experienced continued volatility in September as geopolitical bottlenecks remained unmitigated in the Middle East. With commercial shipping through the Strait of Hormuz remaining severely restricted and war-risk transit surcharges elevated, structural supply constraints continue to embed a persistent geopolitical premium into global energy pricing.
- WTI Crude Settlement: West Texas Intermediate (WTI) crude settled September at $90.55 per barrel (compared to $85.94 in August).
- Year-to-Date Performance: WTI is currently up 58% for 2026.
Here is a look at the one-year chart for U.S. oil:
Retail gasoline prices remained elevated throughout September as persistent transit restrictions through the Strait of Hormuz and high refining surcharges offset standard shoulder-season relief. Sustained fuel costs continue to act as a regressive tax on consumers, hitting lower-income households the hardest and eroding discretionary budgets, while keeping shipping, delivery, and fleet overhead elevated for small business owners heading into the fourth quarter.
The national average for a gallon of regular unleaded closed out September at $4.43, compared to the $4.08 average recorded at the end of August. Also, diesel just hit its highest average price on record at $6.53 a gallon last week. Indiana currently holds the lowest gasoline average in the nation at $3.83 per gallon, while California remains the most expensive, by far, at $6.39 per gallon. For comparison, drivers were paying an average of $3.15 per gallon one year ago. While seasonal driving demand typically tapers into autumn, ongoing geopolitical chokepoints and elevated war-risk insurance premiums will maintain a firm floor under retail fuel costs.
Check out the prices at the pump in your area: AAA Gas Prices.
Outlook
Events on the horizon that could move the markets in the near term:
- FOMC Policy & Interest Rate Hikes: The Federal Reserve continues to maintain a firm monetary stance under Chairman Kevin Warsh to prevent supply-side inflation from becoming embedded in long-term economic expectations, reinforcing the recent rate increase. This persistent hawkish monetary stance puts downward pressure on stock valuations while driving benchmark bond yields higher and bond prices lower.
- Trade Tariffs & Goods Inflation: Administrative tariff measures continue to create trade friction across key partners, with Section 338 tariffs on certain Canadian imports reaching 50%, a 25% Section 301 tariff applying to many Brazilian imports, and a range of product-specific tariffs remaining on Chinese imports. Tariffs continue to pressure the margins of businesses that rely on imported inputs and contribute to inflationary pressure, typically hurting stock and bond prices. Conversely, removing tariffs would immediately relieve profit margin pressure on small businesses, lower living expenses for lower-income Americans, and provide a strong fundamental tailwind for another leg up in stock prices.
- Middle East Conflict & Energy Supply: The ongoing war involving Iran and restricted commercial transit through the Strait of Hormuz continue to embed a heavy risk premium into global energy pricing and shipping freight, disproportionately penalizing small businesses and lower-income households. Further military escalation will push crude costs higher, driving stock prices down and bond prices lower. Conversely, ending the war with Iran and reopening the Strait of Hormuz would eliminate energy surcharges, deliver direct economic relief to small businesses and lower-income Americans, and act as a powerful tailwind for another major leg up for stocks while pushing bond prices higher as inflation risks recede.
- Upcoming Election Consequences & Seasonal Trends: Financial markets dislike political policy uncertainty leading into the November midterms, though historical seasonal trends show October frequently acts as a “bear killer” that sets up strong Q4 rallies once election results clear. Pre-election policy uncertainty temporarily pushes stock prices down and increases bond yield volatility, but post-election clarity historically pushes stock prices up and stabilizes bond prices. Markets will no doubt be volatile for the next few months as elections get finalized but expect the dust to settle before the end of the year.
Please comment or send an email if you have any questions.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
