CWS Market Review – September 15, 2026

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The Federal Reserve started its two-day meeting today. The meeting will conclude tomorrow at 2 pm ET when the central bank releases its policy statement.

Expectations for the Fed have changed dramatically and now it’s widely expected that the central bank will raise overnight borrowing costs by 0.25% to a range of 3.75% to 4%. Spoiler alert: That’s almost certainly what will happen.

Over the last several months, trying to predict what the Fed will do has been a raucous game. To hike or not to hike? Now there finally seems to be a broad consensus to expect a rate hike.

So what changed everyone’s mind? Two points. The recent jobs report, which was surprisingly strong, and last week’s CPI report both tipped the scales in favor of a rate hike. I’ll have more details on the CPI report in a bit.

Traders currently place the odds of a rate hike at more than 90%. After that, traders expect one more 0.25% hike before the end of the year. (Some even expect a third.)

The Fed hasn’t altered rates all year. If the Fed does raise rates, it will be the Fed’s first rate hike in more than three years.

Last Friday, the S&P 500 snapped a four-day losing streak, and stocks fell again on Monday and today. The index is back below its 50-day moving average which has often been an omen for bad returns. The stock market finished Tuesday at its lowest close since July 31. The S&P 500 Value Index (SPYV) has outperformed the broader market in each of the last four sessions.

Thanks to higher oil prices, the energy sector has done quite well this year. The S&P 500 Energy Index (XLE) is up close to 50% this year. ConocoPillips (COP) hit a new 52-week high today. I caution investors that energy investing can be highly volatile. The XLE underperformed for nearly the entirety of the 2010s.

Cyclical stocks haven’t done particularly well recently. Both the S&P 500 Materials Index (XLB) and the S&P 500 Industrials Index (XLI) have lagged the market for much of this year. That could be a warning sign about the manufacturing sector.

Over the weekend, some major tech CEOs called for a slowdown of the development of AI. Frankly, I think much of the language has been unduly alarmist. Evan Hubinger, a researcher at Anthropic, believes there’s a greater than 10% chance that AI will lead to human extinction, as if I need more things to worry about.

Nevertheless, the Nasdaq Composite dropped sharply at Monday’s open, but it regained strength throughout the day. The Nasdaq has now outpaced the market for the last three weeks.

Inflation Rose 0.4% in August

On Friday, the Bureau of Labor Statistics said that inflation rose by 0.4% during August. That was in line with expectations. Over the last 12 months inflation is running at 3.4%.

If we just look at core inflation, which ignores food and energy prices, inflation was up by 0.3% last month. That was 0.1% higher than expected. Over the last 12 months, inflation is running at 2.4%.

Not surprisingly, energy was a big factor in last month’s inflation. During August, energy prices were up 2.1%, and up 16.3% over the last year. Gasoline was up 27.4% last month and up 52% over the last year.

Here are some more details:

Food prices edged 0.1% higher as food at home costs held flat. The food index accelerated 2.7% annually.

Another significant factor was a 0.3% climb in shelter costs, which had moderated over the prior two months. Transportation services saw a 0.5% increase. Used cars and trucks rose 0.4% and new vehicle prices were up 0.3%, part of what appeared to be broad-based gains for the index. Tariff-sensitive apparel prices were flat and motor vehicle insurance fell 0.8%.

Before the CPI report, traders thought the odds of a rate hike this week were 70%. After the report, the odds jumped to 90%. With tomorrow’s policy statement, I’ll be curious to see how many dissenting votes there will be. President Trump has strongly advocated for lower rates. Fed Chairman Kevin Warsh has been unambiguously clear that he intends to get inflation back to 2%.

The most important opinion doesn’t come from any elected official. Instead, it’s what the bond market thinks, and lately, the bond market gods have been displeased. The yields on the 10-year Treasury recently broke above 5%.

Specifically, on Tuesday, the 10-year yield reached 5.041%, the highest level since July 2007. The yield on the 30-year Treasury got to its highest level since June 2007.

Jessica Riedl points out that in February, the Congressional Budget Office projected that it would take 30 years for the 10-year yield to get to 4.4%. Instead, it got to 5% in just seven months.

Each month, the Conference Board releases its report on consumer confidence. Gary Alexander points out an unusual divergence. Americans are very happy right now with their current condition, but they’re very concerned about the future.

In the last report, the Present Situation Index was at 121.2, (the baseline is 100). but the Expectations Index is down to 68.1. That’s a giant spread, and it’s getting wider.

In the last report, the Present Situation Index was up 6.8 points while the Expectations Index was down 5.8 points. Interestingly, many Americans are also optimistic about their own prospects for the next several months.

All this worry, to me, suggests that this is a good time to buy. Assuming, of course, we all don’t go extinct.

That’s all for now. The Fed’s decision will be out tomorrow afternoon. Then on Wednesday is the retail sales report. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on September 15th, 2026 at 5:38 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.