Market Outlook - September 2026

The rise in bond yields has understandably revived an old market reflex: higher rates must be bad for stocks. History offers a useful corrective. An analysis of rolling one-year periods since 1990 found that the S&P 500 produced an average price return of 14.1% when the 10-year Treasury yield was rising, compared with 6.9% when it was falling. Across eight rising-rate cycles lasting at least one year, the index generated an average annualized price gain of roughly 15%. History does not promise a repeat, but it does suggest that the economic reason behind rising rates matters more than the direction of rates alone.

When yields rise because growth is proving more durable and the bond market is repricing inflation risk, equities can continue to advance, although leadership often changes. Cyclical sectors such as Energy, Financials and Industrials have generally performed well during rising-rate periods. Technology has also delivered strong relative gains historically, but the market tends to place a greater premium on proven earnings and cash flow than on distant promises. That backdrop supports a selective approach across financials, industrials and technology while retaining meaningful exposure to energy and materials.

The more important lesson is at the company level. In a higher-for-longer environment, businesses with lower leverage and healthy free cash flow are better equipped to absorb higher financing costs, continue investing and return capital to shareholders. That does not make volatility disappear. It simply improves the odds that volatility works for us rather than against us. As we move into the final quarter, our outlook remains constructive, but deliberately selective: own quality, avoid unnecessary balance-sheet risk, and keep enough flexibility to take advantage of the moments when the market mistakes discomfort for permanent damage.

For a full copy of our September 2026 market commentary, please email msbwealth@nbpcd.com