September Economic Update
Market Summary
The markets kicked-off last month with two consecutive two-day rallies across the broad stock market sectors. From there, we began to give some of those gains back as the market began to digest Treasury interest rates that continued to rise due to Iran and broad concerns from experts and government officials regarding servicing our national debt. The S&P 500 did gain 2.60% for the month, Nasdaq 100 index outperformed with a 4.16% gain, and the small cap Russell 2000 index underperformed at 0.88%. (1)
Treasury Bonds / Yields
On August 19, the US Treasury Department announced they will more than double the size of their government debt repurchases for longer duration debt – meaning they will buy back more Treasury debt / bonds with 10-30-year durations – in an attempt to stabilize the longer end of the bond curve. The catch is, these buybacks are being funded with new issuance of shorter-term bonds. So while rates may be slightly moderated on the long end temporarily, this move could raise rates on the shorter duration bonds.
On the inflation front, backward-looking headline CPI printed at 3.5% year-over-year, while Producer Price Index (PPI) metrics registered at 5.5% year-over-year. While headline consumer inflation eased modestly from June's energy spike, underlying wholesale price pressures confirmed that sticky inflation remains a persistent challenge for domestic producers. (2)
Market Indicators
As trading opens for September, investors are parsing an unexpectedly robust labor market update. The August Non-Farm Payroll report printed a hot 162,000 jobs added—nearly tripling consensus expectations of roughly 55,000—while previous months received upward revisions. This elevates the likelihood that Federal Reserve Chair Kevin Warsh will maintain a restrictive policy stance for longer keeping interest rates high or perhaps even increasing rates again. Futures market odds for a September rate hike oscillated between 30% and 50% last month. After the jobs report last Friday, they pricing-in a 60% chance for a rate hike. (3,4)
A pullback in energy prices was reflected in August’s inflation metrics. Headline Consumer Price Index (CPI) printed. Headline Consumer Price Index (CPI) printed in line with consensus at 3.4% year-over-year, while core CPI moderated further to 2.5%. On the wholesale side, Producer Price Index (PPI) releases confirmed that input costs have been gradually cooling but this will likely be temporary as we are seeing energy prices increase as tensions begin to rise once again with Iran. (5)
Looking Forward…
We have not seen Treasury interest rates at these levels for nearly 20 years. The stock market remains at all-time highs and the corporate bond markets have held up relatively well compared to the Treasury market. These are large divergences that must be monitored closely, meaning either the Treasury market is grossly under-valued or the stock market is grossly over-valued; or perhaps both. At some point, a reversion to the mean is likely to take place.
Monthly Financial Tip:
Now is an ideal time to organize your tax records. Contact your CPA and ask for a mid-year tax check-up. Opportunities for savings may emerge.
Citations:
1. Schwab, August 31, 2026
2. CNBC August 19, 2026
3. Investing.com Sept 05, 2026
4. CME Group Sept 08, 2026
5. Investing.com Aug 12 & 13, 2026
Disclaimers:
This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
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