Our September Perspective
What’s New
September lived up to its reputation for delivering market volatility, but not in the way that many expected. The market-cap-weighted S&P 500 ended the month down a mere 0.35%. The real fireworks were in the bond market.
Yields on longer-dated treasuries continued their upward march in September with several key maturities reaching levels last seen in the early 2000s. For example, the yield on the 10-year US Treasury rose by more than half a percent last month to 5.29%, its highest level since May 2002. The jump in yields took a toll on bonds. The Bloomberg U.S. Aggregate Bond Index lost 2.61% in September and is now down 2.91% for the year.
The month's other major headline came from the Federal Reserve. On September 16, the Fed raised its benchmark interest rate by a quarter of a percentage point, to a range of 3.75%–4.00%. It was the Fed's first rate increase since July 2023. Fed Chair Kevin Warsh was blunt in his press conference: "The plain fact is that inflation is too high and has been too high for too long.“ The month ended with some good news on the inflation front as the Fed’s preferred price measure increased less than expected. However, investors still expect one more rate hike by year-end.
Our Perspective
The rise in interest rates is a mixed bag for investors.
On the downside, when interest rates rise, the value of bonds investors already own falls. Newly issued bonds pay more, which makes older, lower-paying bonds less attractive. Higher rates also make borrowing more expensive for families and businesses, from mortgages and car loans to business credit. They can also weigh on stock prices, since safer investments now offer more competition.
The good news is that buyers of bonds today are being paid more than at any time in over two decades. Money market funds, CDs, and other cash alternatives continue to pay meaningful income as well. For long-term investors, higher yields mean more income going forward and a larger cushion against future price swings. In other words, some of today's short-term pain in bond prices sets the stage for better income ahead.
Our View
Stock Market
The S&P 500's small decline masked larger losses for the typical stock. The S&P 500 Equal Weight Index, which gives every company the same weight regardless of size, fell 4.81%. Smaller companies struggled as well, with the S&P SmallCap 600 down 5.57%.
Bond Market
September was a difficult month for bond investors as rising interest rates impacted nearly all segments of the market with fixed rate debt. While inflation is a frequent cause of rising rates, most of this move appears to be driven by other factors as investors' expectations for future inflation, as measured by the bond market, barely changed last month.
In Focus: US Dollar
At the outset of 2026, the Dollar bears were out in force. Prognostications of a structurally weaker dollar prevailed in the financial press. However, the US Dollar has proved resilient, even in the face of a record federal deficit. Rising interest rates and a desire for safety in a world of persistent geopolitical risk and uncertainty have helped to hold up the Dollar in 2026.
Themes Driving Markets
Rising Rates
Long-term interest rates have climbed to levels not seen in about two decades. A firmer economy, persistent inflation and heavy government and AI borrowing are all pushing them up.
Bottom line: Higher yields raise borrowing costs and make bonds more competitive with stocks.
AI Dependence
AI-related business investment now makes up a larger share of the economy than tech spending did at the dot-com peak. The largest cloud providers are increasingly borrowing to fund it.
Bottom line: As AI carries more of economic growth, a slowdown in spending would be felt well beyond tech stocks.
Stock-Reliant Households
Households hold a record share of their financial assets in stocks, well above the level reached in 2000.
Bottom line: Consumer spending is more tied to the market than ever, so a sharp decline in stocks would weigh more directly on the economy.
It’s Time for Open Enrollment
Medicare open enrollment runs from October 15 to December 7, and it's your yearly chance to change health and drug plans for the year ahead.
What to do:
1. Review the notices that arrive in your mailbox.
2. Confirm your doctors, prescriptions, and expected costs still line up.
3. Everything checks out? You don't need to do anything.
4. Something's off? This is your window to switch.
It's also a natural time to connect the dots with the rest of your plan. Healthcare is one of the largest expenses in retirement, and your premiums can be tied to your income. If Medicare is part of your life, build an Open Enrollment review into your fall routine. We're happy to help.
Sources: S&P Dow Jones Indices LLC., YCharts.
All investments contain risk and may lose value. This material contains the opinions of Manning & Napier, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but not guaranteed.
The S&P 500 Price Return Index is an unmanaged, capitalization-weighted measure comprised of 500 leading U.S. companies to gauge U.S. large cap equities. The Index returns do not reflect any fees, expenses, or adjust for cash dividends.. The S&P 500 Total Return Index is an unmanaged, capitalization-weighted measure comprised of 500 leading U.S. companies to gauge U.S. large cap equities. The Index returns do not reflect any fees or expenses. The index accounts for the reinvestment of regular cash dividends, but not for the withholding of taxes. The S&P SmallCap 600 Index is an unmanaged, capitalization-weighted measure of 600 small U.S. companies with market capitalizations between $300 million and $1.4 billion listed on the on the New York Stock Exchange and the NASDAQ stock market. The Index returns assume daily reinvestment of dividends, and do not reflect any fees or expenses. The Bloomberg U.S. Aggregate Bond Index is an unmanaged, market-value weighted index of U.S. domestic investment-grade debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of one year or more. Index returns do not reflect any fees or expenses. Index returns provided by Intercontinental Exchange (ICE). Index data referenced herein is the property of S&P Dow Jones Indices LLC, a division of S&P Global Inc., its affiliates ("S&P") and/or its third party suppliers and has been licensed for use by Manning & Napier. S&P and its third party suppliers accept no liability in connection with its use. Data provided is not a representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and none of these parties shall have any liability for any errors, omissions, or interruptions of any index or the data included therein. For additional disclosure information, please see: https://go.manning-napier.com/benchmark-provisions.
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