CWS Market Review – September 29, 2026

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The third quarter of 2026 comes to an end with tomorrow’s closing bell. Overall, it was a middling quarter for the stock market. OK, but not great. For the quarter, the S&P 500 added about 2%. If we look at the total-return index (meaning, with dividends), then the S&P 500 was up by 2.4%. Mind you, these aren’t final numbers. There’s still a little more trading to go.

Q3 was very different from Q2. That’s when the S&P 500 rallied over 14% to notch its best quarter in six years. Q3 wasn’t nearly that exciting. Except for a quick bounce that added 5.75% in four days starting in late July, there wasn’t much drama in the market. Since May 6, the S&P 500 has largely stayed between 7,300 and 7,700.

Nvidia (NVDA) made news this week by adding $150 billion to its buyback. (Someone there thinks it’s a bargain!) Lately, the real action has been going on in the bond market. Since August 25, the yield on the 10-year Treasury bond has gained 60 basis points. That’s a big move for such a short period of time. The yield on the 30-year bond just got to a 24-year high.

What’s behind the bond selloff? There are a few reasons. I’ll cover that in greater detail in just a bit, but the important takeaway is that higher yields have a major impact on the economy. It’s no accident that higher long-term yields have often preceded bear markets. I’m not urging you to run for the hills, but investors ought to be prudent.

Higher yields have several effects. For one, it’s harder to borrow money. That makes buying a car or a new home more expensive. In turn, that can hold back the plethora of workers and businesses that are tied to housing (roofers, electricians, plumbers, etc.). It’s a good time to buy a house with all cash.

Higher yields also act as tough competition against stocks. There’s basically a never-ending battle on Wall Street between stocks and bonds. At yesterday’s close, the yield on the 20-year Treasury was going for 5.6%. That means an investor with $1.8 million can buy those bonds and make an average of $100,000 per year for 20 years. Personally, it’s not for me, but I understand why many investors would have little problem taking that deal.

Higher yields also make it more difficult for businesses to borrow money. That puts a damper on mergers and acquisitions, which is a very profitable area for investment banks. It’s no surprise that in recent days, financial stocks have badly lagged the overall market.

The U.S. continues to motor along. The economy is growing by more than a recession but by less than anything impressive. Kevin Warsh said, “the American economy appears to be strengthening,” which may be true, but I have my doubts. Today’s consumer confidence report fell to its lowest level since 2014. The Consumer Confidence Index fell 6.7 points to 81.9. Wall Street had been expecting 89.

On Wednesday, ADP will release its report on private payrolls. The company expects to see a gain of 68,00 new jobs. Of course, that’s the unofficial report. The big, official September jobs report is due out on Friday before the opening bell. Wall Street expects to see a gain of 84,000 net new jobs. That’s almost half the gain of what we saw for August.

Wall Street expects the unemployment rate to remain at 4.1% and for average hourly earnings to increase by 0.3%. The Federal Reserve doesn’t meet for another month, but it looks like we’ll get another rate increase just before Halloween. The bottom line is that rates are most likely to go higher and higher.

Now let’s look at what’s been roiling the bond market.

The Foiled Plan to Lower Inflation

As usual, I’ll steer clear of politics, but I will touch on some important public policy choices. For example, early in his second term, President Trump’s advisers give him a simple roadmap to cure inflation.

They assured him that fiscal restraint combined with deregulation would bring down prices. The best part of this plan is that he wouldn’t need to worry about a non-compliant Federal Reserve.

Well, that plan never happened. Instead, we got war, tariffs and an investment boom. Now, inflation is moving up and the yield on the 10-year Treasury is above 5%. That’s a 19-year high.

Fiscal restraint never arrived, and tariffs raised the cost of imports. On top of that, immigration restrictions shrank the labor force. The economy is still moving along, and energy prices are higher than ideal.

Earlier this year, mortgage rates were around 6%. Now they’re at 7%. That works out to $3,000 extra dollars on a $400,000 mortgage. That’s a big bite for a young family.

Consider this fact: Uncle Sam’s interest payments on our debt just reached $1 trillion for the fiscal year. That’s nothing we get. It’s just interest payments we’re making.

Of course, not all of this can be laid at President Trump’s doorstep. The massive AI boom is driving up the cost of several items like chips, components and power equipment. The problem now is that the mega-cap tech stocks are competing against the government to borrow money. If I know the bond market, it’s more than willing to lend to blue chip borrowers.

The economy really isn’t in a bad place, for now. Unemployment is still quite low, and the stock market is not far off its all-time high.

As has often happened with bold plans to restructure the government, reality intrudes. At first, Trump was serious in cutting the deficit. Remember DOGE, the Department of Government Efficiency? Elon Musk said he could find $2 trillion worth of waste. Trump also pushed for tariffs, but the Supreme Court said some of his moves went outside the president’s authority.

This summer, Treasury Secretary Scott Bessent said the Treasury Department will double its purchases of long-term bonds. The idea is that this would push down rates. Well, that worked for about day. Since then, yields have been climbing higher.

The government’s fiscal year ends tomorrow. It will probably turn out that the size of the deficit will be twice what Bessent had expected. Now, everyone wants to spend money. President Trump recently pledged $5,000 for every adult if Republicans keep control of the House and Senate.

We also have a new Fed chairman in Kevin Warsh who has taken a strong stand against inflation. The Fed has already raised rates once and looks to do so again before the end of the year.

The impact of the war isn’t just oil, but higher prices are being seen in other areas. For example, diesel prices are rising. That’s important because that impacts farm equipment and trucks.

The president said that oil prices would soon fall once the conflict with Iran was resolved. Here we are several months later, and the prices are still elevated.

The concern is that the impact of higher interest rates will have little impact on what’s really driving higher prices. I get what they’re saying. Will Nvidia really hold off going to the bond market due to a 0.25% rate hike? I doubt it.

Three Dark Horse Candidates for Next Year’s Buy List

Now that 2026 is three-quarters over, I want to share with you some “off-the-beaten-path” stocks that I’m considering for next year’s Buy List.

Let’s start with Credo Technology Group (CRDO). The company designs “zero-flap” active electrical cables that connect GPUs in massive clusters. This is a highly specialized niche essential for AI applications. Their connections are reportedly 1,000 times more reliable than standard competitors. This ensures that AI training processes don’t randomly drop signals and reset. Credo’s revenue has exploded (fiscal Q1: +114.7%), with expectations of major multi-billion-dollar growth over the coming years.

CECO Environmental (CECO) provides industrial air quality and fluid handling systems, which are increasingly vital for factories, data centers and energy infrastructure.

Wall Street analysts have taken notice of CECO’s massive $1 billion backlog and $7 billion pipeline. Thanks to heavy tailwinds from U.S. manufacturing reshoring and AI data center expansion, CECO is delivering stronger revenue and cash conversion growth than almost all its peers. CECO just completed a $2.2 billion cash-and-stock acquisition of Thermon Group Holdings, a process-heating company.

Toast Inc. (TOST) provides specialized point-of-sale (POS) and operational software that’s tailored for restaurants. Toast has a strong moat by helping restaurants manage everything from table orders to inventory and employee scheduling.

Toast’s recurring gross profits have surged over 30% recently, allowing them to sustain rapid annual growth even in a fluctuating consumer environment.

That’s all for now. The September jobs report is due out Friday morning. Wall Street expects to see a gain of 84,000 new jobs—that’s nearly half of August’s gain—and for the unemployment rate to be 4.2%. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on September 29th, 2026 at 7:03 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.