Weekly Newsletter: September 7, 2026
Growing up, if you didn’t like the answer one parent gave, you always checked with the other. The markets were not thrilled with the speech Fed Chair Warsh gave at Jackson Hole. It was the closest thing to forward guidance that he has provided in his tenure as Chair. Inflation is, and has been, an issue for the Fed for the past five years. Interest rates rose in anticipation of a hike at their September meeting. This week, before the Fed entered its quiet period, Fed governor Chris Waller chatted about his views on monetary policy. He speaks infrequently and carries a fair amount of weight on the committee, so when he speaks, the markets listen. He downplayed the need for an immediate rate increase, but would be watching the inflation data this week to determine his views on a rate increase. The markets reacted strongly as his comments seemed to push back on Warsh’s comments the prior week. Of course, this week’s inflation data went from important to critical for interest rates. After the CPI data this week, Mom and Dad will chat about how to handle the situation.
The employment report, following Waller’s comments, and just ahead of a three-day weekend got short shrift. Far from being no-hum, the report was well above expectations in addition to last month’s report adjusted higher. It confirmed the health of the jobs market that has been showing up in the weekly jobless claims data. Construction and manufacturing added a quarter of the total gains in August. Wages are still running with inflation, so the average worker is not getting ahead nor further behind. Economists point to the data center buildout driving much of the better economic data. Both the manufacturing and service sectors saw expansion according to the Institute of Supply Management. Prices paid rose as a sign that inflation data is becoming more ingrained in the economy. The “official” data is due this week as both consumer and producer prices get released. Given the heightened focus on the numbers, anything a bit away from expectations could generate an outsized move in the markets. All other data points are likely to be overshadowed by the inflation data and the direction of rates at the Fed meeting in two weeks.
The Warsh and Waller war of words has impacted the Treasury market. Yields began the week higher and ended lower by Friday’s close. There was little excitement outside of the Treasury market as corporate and high-yield bonds continue to do well compared to Treasuries. Yields have been slowly rising all year, meaning the return on bonds is essentially zero. The gain from the income on the bonds has been erased by a decline in prices. It’s not a terrible predicament, as the bonds will still mature and provide investors the return they “bought”. It is just the interim that makes bonds look rather dour.
Typically, September is one of the worst months in the calendar. October may get all the press for crashes, but the average return in the month is negative. Once past the month, the next six tend to be good as investors look to easier fiscal policy to pump the economy ahead of the presidential election. Yes, once the midterms are decided, the chatter gets louder for the next election. The markets have traded within a 5% range since early June, even as the earnings season has been strong. Answering questions about the impact of data centers, costs, and potential returns has cooled buying in AI-related names. That includes AI-adjacent companies, including manufacturers that stand to benefit from data center builds.
It will be all about the inflation data this week. Expect more than the usual paralysis by analysis of the minutiae contained within the report.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.