Weekly Newsletter: September 14, 2026
The beginning of football season always brings hope that the home team will prevail and ultimately win the Super Bowl. For many teams, it is a strong defensive line that can carry the team. The financial markets are trying to get through a very tough defense and put up some gains. Higher yields, energy prices, and a strong dollar tend to toss the markets for a loss. This past week saw oil prices cross back above $100bbl for the first time in months and Treasury yields on 10-year bonds getting close to 5%. The dollar has been on the sidelines for the last couple of months, sitting about midway between its recent highs and lows. The much-anticipated release of the consumer and producer prices last week confirmed that inflation remains a problem. As a result, the Fed is likely to hike rates at its meeting this week for the first time in over three years. Usually the statement released by the Fed, announcing its rate decision, is pretty dry. However, the press conference that follows allows the Fed Chair to explain what went into the decision, what things the Fed is watching, and likely next moves at upcoming meetings. Typically, the press conference comments move markets as investors try to “front-run” the next Fed decision. This week could answer whether the markets will be able to break through all the various defenses and run to new highs.
The comments from Fed Governor Waller two weeks ago made the release of inflation data last week that much more important. Both inflation measures came in well above the Fed’s 2% target, and “betting” on the direction of interest rates went from a 60% chance of an increase to 99% following the CPI release. Not surprisingly, oil prices were up 27% from a year ago and contributed to much of the higher inflation. Surprisingly, food and shelter are both lower today than a year ago. The key question is whether a decline in energy prices immediately rolls back inflation data or has energy seeped into other parts of the economy that could keep inflation high. One indicator that Chair Warsh likes to look at is the median and “trimmed mean” inflation data courtesy of the Cleveland Fed. The median inflation rate came in at the lowest pace all year and is down a full percentage point from a year-ago level. The trimmed mean removes the highest and lowest 16% of the component inflation data and focuses on the middle 68%. While not as dramatic as the median figure, it too has declined nearly a percentage point from a year-ago level and is only 0.35% away from 2%. What this means is that energy prices have been driving much of the inflation higher, and IF the Fed were to look for a reason to keep rates stable, this data series might be the one.
Interest rates continue to follow energy prices higher. Questions are beginning to be asked about not only how high rates can go, but at what point rates “compete” with equities for investment dollars. If the 10year Treasury crosses above 5%, investors may get their answer. It is possible that if the Fed hikes as expected this week, interest rates decline a bit, under the guise that the Fed is “on the job” and inflation will be tackled. As of yet, there is little concern regarding high-yield or “junk” bonds. Investors remain attracted to their higher (albeit small vs. Treasury) yields. It has been argued that “junk” bonds are not as “junky” as they used to be. One man’s garbage is indeed another man’s treasure.
The stock market is having some trouble making headway since the halcyon days of the SpaceX IPO early in June. The SP500 has traded within 5% of the June peak over the last 10 weeks. The broadening out of the market to other parts than just AI or technology has occurred since that peak; however, the past month has been a bit trickier. Only 30% of the market is trading above its short-term average price, while 59% is trading above its long-term average price. This is down from 60% and 75%, respectively, in early August. The March decline in the markets provided some angst, pushing the first quarter down by 7.5%. So a market off the peak by roughly 3% is not terrible, given the negative news flow of the past few weeks. Yes, this can morph into something much more troubling, and there are (and have been for years) signs that the markets should decline meaningfully. However, generally easy monetary and fiscal policies have allowed the flow of money into Wall Street to bolster stock prices.
The Fed meeting and resulting decision and press conference will be watched very closely for signs of future rate increases. Retail sales due on Wednesday may provide some insight into the health of the consumer as well.
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.