And Here We Go… 

Seven Things You Should Know

1. Equity Markets – were down this week with U.S. stocks (S&P 500) declining -1.16% while international stocks (EAFE) fell -1.40%.
2. Fixed Income Markets – were down this week with investment grade bonds (AGG) sliding -1.01% and high yield bonds (JNK) decreasing -0.72%.
3. U.S. CPI – Consumer prices rose 0.4% in August bringing the 12-month reading to +3.4%, in line with expectations. However the core CPI reading (excludes food and energy prices) rose a surprising 0.3%, suggesting oil-related inflation shocks may be broadening. Odds of a rate hike at September’s Fed meeting have now reached above 80%. 
4. U.S./Iran – The U.S.–Iran conflict escalated as American forces struck Iranian oil tankers following Iranian missile attacks on U.S. warships, while Iran-backed Houthi advances raised additional risks to Red Sea shipping. The heightened threat to global energy supplies pushed oil above $100 per barrel, renewing inflation concerns and adding upward pressure to bond yields and market volatility.
5. Cybersecurity Reminder – Scammers are increasingly using Remote Access Tools (RATs) along with phishing emails or texts to take control of devices like phones, tablets, and computers. Once installed, these tools can give cybercriminals access to sensitive information, including your Schwab accounts. These attacks can be hard to spot, so if something doesn’t feel right- like unusual account activity or suspicious messages- trust your instincts. If you sense suspicious activity, please call us immediately or report any concerns to Schwab at 800-515-2157. 
6. 9/11 Special Message – We want to make sure to note the importance of this day for our country, and of course all of those families directly impacted by 9/11. Our thoughts are with them today, along with our prayers that are country may find that same spirit of unity that existed in the aftermath of that tragic day.
7. Key Insight – [VIDEO & ARTICLE] As we head into fall, after a relatively quiet summer for markets, there are any number of potential headline-making events ready to take the stage and act as meaningful market catalysts. From the Fed’s rate decision, to Treasury rates, and of course the upcoming midterms. Today, we’ll take a look at some of these events, but also look out a bit to get a better understanding of where the economy sits today.

Insights for Investors

By Tim Mitrovich

And Here We Go… 

Intro

At the start of every UFC the announcer opens with “and here we go…” As we head into the fall investors and markets may very well have a few fights on their hands, but nothing that a little patience and preparation shouldn’t help them get through. 

We similarly analogized markets to a “boxing ring” back on May 15^th, 2026, just as investors and markets were struggling with fears around the conflict in Iran. As we told you then, market “opponents” and taking some “punches” are just part of the journey as an investor – and not something that should be either a surprise or something investors need fear. 

This fall’s opponents are likely to be the press-fueled headline drama around the Fed’s upcoming decision, midterms and of course the future direction of Treasury rates and inflation. 

The Federal Reserve’s Upcoming Decision 

I have no doubt that many of you are asking yourselves something to the effect of “what is the big deal with the Federal Reserve rate, and interest rates in general?” In short, the general theory––and one supported by history, is that as borrowing costs decline, general business activity and consumer spending goes up– both of which help spur economic growth. Conversely, if rates get too high the economy can slow and perhaps even be at risk of recession. 

It is important to note that future market direction is not as much about absolutes, such as “good “or “bad” (as many believe), but rather relative change and expectations.  

Currently expectations are for the Fed to hike rates a quarter of a percent at their meeting next week. If they do, the market takes it in stride given current expectations but if they decide to hold, it could roar. So, what are they likely to do? 

There is good reason to believe they should hold if one looks beyond the headline number to understand what is driving the recent numbers. As Tom Lee recently pointed out, inflation data is not really as bad as many would have you believe, and he is actually bullish for the month of September. He listed a few primary reasons, (1) there are too many expecting a pull-back given September’s history and perhaps repositioning is largely over; (2) AI pessimism is likely overdone; (3) inflation data is not as bad as it’s made out to be. On the latter, he noted that a sizable portion of the recent inflation data is being driven by financial services and sporting goods – neither of which is a threat to consumers. 

Strengthening the odds of a rate hike was last week’s jobs report.  

Last week’s jobs report blew away expectations for a gain of 55,000 jobs with gains of 162,000 in August. That kind of strength in the labor markets (seen as indicative of economic strength) may give the Fed cover to believe they can raise rates and hopefully put a death nail in inflation. More importantly in our opinion is the “good news” around this report regarding general economic strength despite elevated rates and other headwinds (e.g. the War in Iran) as well as a counterpoint to fears around AI displacing a substantial number of jobs. (Source: First Trust, 9/4/26) 

The team at JPMorgan indirectly qualified the impact of the most recent jobs report on the Fed’s upcoming decision as well, noting that one of the historical fears around a strong labor market is wage inflation and the upward effect on inflation. On that front they noted that while the labor market is strong, surprisingly wage growth (which typically is the leading cause of inflation) remains tepid. That stated “On the surface, the U.S. labor market remains remarkably strong. The unemployment rate held at just 4.1% in August, lower than it has been 88% of the time over the past 50 years. Yet despite this apparent tightness, wage pressures continue to fade. Average hourly earnings rose just 3.1% over the past year, extending the slowdown in wage growth to its weakest pace in more than five years.” (Source: JPMorgan, 9/8/26) 

The Fed Rate Isn’t the Only Important Interest Rate 

While the market will, somewhat understandably, fixate on the news event of the Fed’s next decision, just as important (or more so) is the future direction of the 10-year treasury. Torston Slok, Chief Economist of Apollo, believes if one is willing to look at least six months out (as investors should) there is likely good news on the future direction of rates.  

He states, “the risks are rising that long rates six months from now could be a lot lower than where they are today. 
 
Long rates are high today because of inflation and fiscal problems. But these forces could end up being dominated in early 2027 by what happens to AI, see the first chart below. 
 
If AI succeeds and tech companies generate trillions in revenue, AI will be massively deflationary and push rates lower. 
 
If AI does not work out, the bubble bursts and the Nasdaq is down 50% as investors rotate out of equities into Treasuries and long rates fall dramatically. 
 
Over the next six months, the market will make up its mind about which AI scenario is playing out. 
 
The bottom line is that financial markets are driven by narratives. The narrative in rates today is all about inflation and fiscal problems. But the narrative going into 2027 is going to be all about either the success or failure of AI. And in both scenarios, long rates are going to be lower.” 

There are many that make the claim that Treasury yields are rising due to US fiscal concerns and/or government credibility. Slok pushed back on that in a piece entitled “Bessent is Right” in which he explains, “The term premium measures the extra yield investors demand for holding a long-dated bond beyond what expectations for Fed policy alone would justify, which makes it a key market-based gauge of fiscal sustainability and Fed credibility. Speaking at the last Treasury Market Conference, Treasury Secretary Bessent noted that the US 10-year term premium is basically unchanged. The chart below shows that this is still the case. 
 
Specifically: 
 
1) The New York Fed’s measure of the US 10-year term premium has moved sideways over the past 12 months. On this measure, there has been no deterioration over the past year in how the market prices US fiscal sustainability or Fed credibility. 
 
2) The US term premium currently sits below the term premiums of Japan and Germany. This suggests that the market is less worried about the US fiscal situation compared with the fiscal situation in Germany and Japan. 
 
The bottom line is that this chart pushes back on the idea that the US fiscal situation is having a uniquely large impact on long-term rates, or that Fed credibility is worse today than 12 months ago.” 

Speaking at the last Treasury Market Conference, Treasury Secretary Bessent noted that the US 10-year term premium is basically unchanged.

While lower rates due to missed AI expectation would likely coincide with market turbulence, investors can take solace in a few key points, (1) the rotation within the market this year to sectors beyond technology; (2) tech’s relatively lower PE ratios which should dampen any downside; and (3) that lower rates would spur many other aspects of the economy, including the still largely range-bound real estate sector. 

The Final Scoreboard: Corporate Earnings 

The Federal Reserve, interest rates, and the labor market are all important factors in trying to determine the state of the overall economy but at the end of the day the thing that matters most to markets in the strength of corporate earnings.  

The more earnings/profitability the more markets generally rise, and of course on top of that the “multiplier” that investors are willing to pay for a dollar of earnings. During eras such as the dot.com bubble, investors paid incredibly high multiples for a dollar of earnings – which as investors learned is rarely a good idea.  

Ideally, earnings are strong and growing and the multiple is “reasonable.”  

Where do we sit today? 

The recent earning season was yet another blockbuster in terms of earnings growth. As of a recent report, over 95% of companies had reported with 88% beating estimates by a median of 7% (Source: Fundstrat, 8/27/26). As we noted earlier this year, while doomsayers will continue to try to analogize the current market rally to the dot.com era (not my intention above), the comparisons are misplaced for one big reason – earnings strength. (see article HERE 5/29/26) 

Markets that move higher predominately because investors are just willing to pay more for a dollar of earnings are generally seen as precarious, while markets that ascend on earnings, strength, and reasonable valuations are seen as more sound. 

As of today, the forward-looking Price-to-Earnings ratio of the S&P 500 is just 19.73x despite the last few year’s large returns (it’s 5-year average is 19.9x), and the NASDAQ sits at 20.75x vs. a 5-year average of 24.14. (Source: Reuters, 9/8/26) 

Why? 

As Ryan Grabinski of Strategas noted, “2026 has been all about earnings growth, with virtually no multiple expansion at the index level. While that is neither inherently positive nor negative, it does narrow the path forward. Looking ahead to 2027, returns are likely to become more reliant on multiple expansion. Historically, it’s rare to have two consecutive years in which earnings growth alone has driven the entirety of market returns outside of recession.” (Source: Strategas, 9/8/26)  

Reasonable valuations can be seen to provide two benefits to investors, (1) reasonable prices, as opposed to sky-high multiples, can act as a buffer to potential market declines with the general logic that things only get so “cheap” and (2) if stocks are already trading at a lower multiple there is the potential upside of markets demanding higher earnings multiples, which in turn raises share prices. 

In Closing 

We cautioned for some time that this fall was set up to potentially bring an uptick in volatility alongside emotion provoking headlines that could once again challenge investors. It’s important to try to prepare for those to avoid being caught by surprise, but even more importantly, to keep in mind the bigger picture and what really moves markets over time. 

To that end and whatever this fall brings, we think the data shows that the general state of the economy, and especially corporate America, is much better than the media would have you believe. 

Should volatility come, keep this data in mind and be ready to be greedy when others are fearful. 

Have a wonderful weekend, 

Tim and the team at TEN Capital 

Data, Just the Data

• U.S. PPI – Producer prices rose 0.4% in August, in line with expectations. This marks the largest increase in 3 months amid new oil price spikes.
• U.S. Existing Home Sales – fell 2% in August to a seasonally adjusted annualized rate of 3.98 million. Median sale prices now sit at $429,100.
• U.S. Jobless Claims – initial claims fell by 1,000 last week to a total of 206,000. Continuing claims also fell by 1,000 for a total of 1,774,000.
• U.K. GDP – The United Kingdom’s economy grew by 0.4% in Q2. Year over year GDP has grown by 1.2%, above expectations of 1.1%