Quarterly Market Update

Current Market and Economic Conditions

• Year to date, the S&P 500 Index is up 12.7%. The MSCI EAFE (International) Index is up 10.8% year to date. The Bloomberg Barclays U.S. Aggregate Bond Index is down 2.9% year to date.¹
• The economy continues to grow, but inflation remains sticky due to higher oil prices affecting many sectors of the economy.
• The Federal Reserve increased the short-term federal funds rate by a quarter point in September. The Federal Reserve chairman has indicated that the Fed will be much more aggressive in fighting inflation.

Bond Market

• In his twice-yearly remarks to Congress on July 14, Federal Reserve Chairman Kevin Warsh stated, “The Fed’s number one objective is to get monetary policy right, or as near to it as we possibly can. That is our clear and constant aim, the star we steer by.” He added, “And if we get policy right, and we will, the inflation surge of the last five years will be a thing of the past.”
• On broader conditions, Warsh said the economy “is expanding at a solid pace, showing resilience in the face of recent developments.” He pointed to business investment, which he called “the most striking feature” of the current climate. “The rapid pace, which appears to be accelerating, reflects, in large part, the construction of data centers and the immense demand for the AI-related equipment and software that fill them,” he said.²
• The bond market is struggling as interest rates rise. The Fed is forecasting one more potential rate increase in 2026.³ The futures market is projecting a total interest rate increase of one percentage point in 2027.⁴ Uncertainty surrounding the direction of the economy and inflation has the bond market preparing for the possibility of an economic slowdown while inflation rises, the classic definition of stagflation.

Stock Market

• Despite continued uncertainty, the market has pivoted to focus on more typical factors, including valuations, earnings growth and capital expenditures.
• The market is beginning to look for returns from investments beyond the S&P 500, which is up 12.7% year to date. The MSCI Emerging Markets Index is up 23.7% year to date, while the Russell 2000 Small Cap Index is up 13.7% year to date.
• Generally speaking, oil supply disruptions have been somewhat temporary since 1990 and have ultimately led to higher stock market prices.⁵
• Following midterm elections, the stock market has produced above-average returns regardless of election results. The average one-year return following midterm elections since 1950 is 15.4%, compared with an average stock market return of 7.8% in other years.⁶

About the Author

Written and prepared by Robert Janson, AIF^®
Director of Investments
847-457-3038
bob.janson@aleragroup.com

Endnotes

1. JPMorgan Guide to the Markets as of Sept. 30, 2026.
2. CNBC, July 14, 2026, “Warsh pledges Fed policy ‘regime change’ to rid inflation ‘tax’ on American people.”
3. Federal Reserve Open Market Committee press conference transcript, Sept. 16, 2026.
4. CME FedWatch Tool as of Sept. 30, 2026.
5. Capital Group, Bloomberg and Standard & Poor’s.
6. Capital Group, RIMES and S&P Global.

Important Disclosures

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