Weekly Newsletter: September 21, 2026
The good, bad, and ugly. There was plenty of analysis of the Fed meeting. Depending on views on the economy and markets, an argument could be made for any of the above. The CPI data from the prior week sealed the Fed’s decision on hiking rates. Inflation continues to be an issue, although much of the inflation is a result of higher energy, which the Fed cannot control. Others are relying on a variety of data points that show inflation slowing and would argue for holding rates steady, if not cutting them before year-end. The projections of economic growth, inflation, and direction of interest rates by the Fed members were ugly. The usual inflation back to 2% within the next two years was rolled out again, for the umpteenth time. A few of the Fed members indicated that rates would decline sometime in 2027, while others saw further hikes. There are two more meetings this year, with one a few days ahead of the midterms when the Fed is likely to sit on its hands, to avoid being accused of being too political. That leaves the December meeting as the next true opportunity to adjust rates. A few employment reports, inflation data points, and a full cycle of earnings data should provide the Fed with everything they need to know to confidently make a decision on interest rates. No matter their decision, there will be plenty of second-guessing.
The economists looking for rate cuts or fearing a policy error by the Fed point to a slowing economy as their primary reason. The only real economic data for the week was retail sales. At a 6% annual clip, it does not look like a consumer that is too concerned about oil prices. Gains were seen across the board, and the pace is well above inflation, indicating a consumer bringing home more stuff than a year ago. The usual weekly jobless claims were at near 40-year lows, confirming what Chair Warsh said about the economy: it remains relatively strong and resilient. The concern is and has been inflation. While a 25-basis point increase will do little to stem the inflation tide, it begins to reduce the accommodation from the rate cuts over two years ago. The markets will be interested in hearing from the various Fed Governors as they discuss their own views on interest rates and inflation. Now that the Fed meeting is over, the chatting starts! In their release of the “dot plots”, an indication of where each of the members sees inflation, growth, and interest rates, there was a split in those seeing rate cuts and rate hikes in 2027. These projections are something the markets try to read. However, a short history of these plots has proven to be well off the actual path of interest rates, economic growth, and inflation.
Interest rates wound up the week essentially where they started after jumping around on “Fed-Day”. A couple of things became evident by the end of the week, though. The yield curve flattened dramatically, from nearly 50 basis points wide to roughly 20 basis points wide. Short rates rose while longer-term rates fell. The long rates declined as the Fed sharpens their inflation fighting swords. Short rates rose in response to the Fed rate hike. Other parts of the bond market remained quiet, as interest in corporate and high-yield bonds remains strong. Now that the Fed has begun the hiking cycle, when will it end? The snarky Wall Street comment is that it will end when something in the markets breaks.
September is living up to its billing as one of the worst months of the year. This week was another down week for most of the averages, save for the tech sector. The modest decline in the averages for the month has hidden more deterioration in the average stock. Less than 30 percent of the SP500 names are above their short- and intermediate term average price, and about a 50/50 mix is at their long-term average price. The good news is that, at least on a short-term basis, stocks have found a temporary floor when so many have gone down. Similar to pushing a ball underwater, the further below, the bigger the pop when the pressure is released. The rotation back to technology stocks in general is surprising, given the discussions around AI, the implications of “rogue” bots, and the pleading of the industry to have increased regulation in the sector. Earnings season will get cranked up again (didn’t it just end?!) in a couple of weeks. Expectations remain very high for earnings growth. It will be that growth that drives stocks in the long run.
The Fed “explanation tour” begins this week, so focus will be on each of the Fed Governors’ discussions on the economy. The end of each month typically sees little economic data, therefore opinions may move the markets more than usual.
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