Market OverviewThe winds are shifting and things feel a bit rockier. The bond market is in something akin to a full revolt both against the Fed’s claims that they have inflation under control and the apparent confidence of the stock market. Energy prices have soared, forcing pain upon global consumers at the pump and those energy transportation costs are trickling through into consumer goods that must be shipped in diesel trucks and ships. And yet, large cap US stocks ticked higher in the last quarter (helped mostly by a very strong start in August with erratic weeks since then). International stocks were flat to negative and small cap US stocks fell, making it a mixed bag globally. A diversified portfolio could have easily seen small losses as bond prices fell amidst rising rates. The 10-year US Treasury rose again to close out September, and the rate well above 5% is the highest we have seen in nearly 20 years. Since the COVID lows, it is easy to feel like rates have only moved ever higher. More on that later.So finally, we’ve seemingly taken a break from the relentless climb in stocks we had become so accustomed to. We’re not going to speculate as to whether this is a brief interruption or more of a turn of the page, because who knows! No one. Prediction is fallacy and timing is madness. Rebalance, take gains, harvest losses, tune out the rest. No one’s investment journey ends here.3Q 2026 1 Year 3 Year 5 YearLarge Cap US Stocks 2.30%15.74%22.89%13.79%Small Cap US Stocks-8.28%14.19%12.86%4.44%International Equity0.81%15.69%18.40%9.32%EM Equity-0.37%29.22%24.09%8.94%Aggregate Bonds-3.42%-1.99%4.09%-0.62%Index performance is provided as a benchmark. It is not illustrative of any particular investment. An investment cannot be made in an index. Past performance is not an indication of future results. S&P 500, S&P 600, MSCI EAFE Index, MSCI EM Index, Bloomberg Agg Bond Index. Returns as of 9/30/2026.Economic UpdateFreshly updated economic data has softened from earlier this year on several points. The two issues making the loudest noise are inflation and interest rates, closely tied together. The benchmark 10-year Treasury yield ticked nearly to 5.3% at the end of the month, rates not seen since 2007. The drivers here are a mixed bag of higher energy prices, inflation concerns and borrowing demand booming from the tech/AI sector looking to chew up more and more lending assets. Mortgage borrowers have not been spared as the 9/24/26 Freddie Mac survey showed national average rates above 7% (this number is trending higher over the last week with some reports at MortgageNewsDaily closer to 7.5% as of 9/30). As a result, mortgage demand is falling quickly. New purchase applications were down 14% from a year ago in the last week of September and refinancing activity has nearly completely dried up, down 56% from a year ago.The most recent official Consumer Price Index data showed a year-over-year change of 3.4%, well above the Fed’s stated 2% target and higher than average for the past several years.In September the Federal Reserve board reversed course from a rate-lowering cycle that started in late 2024 and raised the target rate 0.25% in an effort to keep inflation in check.The Fed faces a large headwind in energy prices as the ongoing conflict in Iran and bottleneck in oil transportation that has resulted continues to push up global oil prices. West Texas Intermediate (WTI) has been flirting around $100/bbl in September and Brent crude has been above that. This is up from pre-conflict prices closer to $60-$65/bbl.Despite these difficulties, the labor market remains quite healthy. Unemployment was just 4.1% in August, continuing a low steady trend.Job openings have fallen over time from the post-COVID highs, but have generally held steady for the past few years.All of these factors have weighed on US consumers. Both the Conference Board consumer confidence index and the Michigan consumer sentiment survey figures have fallen consistently since 2024. Most recently the CB Consumer Confidence index hit a 12-year low at 81.9. I think it is safe to say that there are some grey skies on the horizon. Consumers and the broad economy are facing an unexciting labor market, rising interest rates, less promising real estate markets and increasing costs. Certainly markets have endured worse, and we can’t give in to panic as investors, but it can be useful to emotionally prepare for a rough ride if nothing else.