September Review 2026

U.S. large caps were only modestly lower in September, but that masked broad underlying weakness. Gains were concentrated in Technology (+4.5%) and Communication Services (+4.3%), while the remaining nine sectors declined. As a result, market leadership remained exceptionally narrow, with the equal-weight S&P 500 falling 4.8%, while small- and mid-caps (Russell 2000 and Russell Midcap) lost 5.3% and 4.2%, respectively. The steepest declines came from cyclicals, including Financials (-7.2%) and Materials (-6.7%), as well as traditionally rate-sensitive sectors such as Real Estate (-6.1%) and Utilities (-5.9%). Meanwhile, software companies, which have lagged for much of the year, rebounded as concerns over AI-driven disruption to the sector eased.

International markets also declined in September, with the tech-light MSCI EAFE (developed markets) falling 3.0%, while the tech-heavy MSCI EM Index lost 0.7%. Emerging markets were supported by gains in Korean (MSCI Korea +2.2%) and Taiwanese equities (MSCI Taiwan +3.9%), both heavily exposed to AI-related companies. Despite a constructive summit between Presidents Xi and Trump that may improve future trade relations, Chinese equities (MSCI China) fell 4.6% during the month. Meanwhile, Indian equities (MSCI India), which are sensitive to rising energy prices, declined 7.1%. In contrast, Brazilian equities (MSCI Brazil +3.2%) rallied ahead of the country’s closely contested presidential election in early October.

Fixed income markets declined in September as stronger economic data, persistent inflation, and higher-for-longer rate expectations pushed Treasury yields sharply higher. The 10-year Treasury yield rose roughly 54 basis points to 5.29%, driving broad weakness across duration-sensitive sectors. Importantly, the selloff was driven more by rising interest-rate risk than deteriorating credit fundamentals, with longer-duration Treasuries and investment-grade bonds bearing the brunt of the decline while shorter-duration, securitized, and floating-rate sectors proved more resilient. Municipal bonds were a notable laggard as yields climbed to their highest levels in more than a decade, with tax-loss selling and fund outflows adding technical pressure to an already challenging rate environment.

Hedged strategies declined modestly in September amid elevated volatility, rising interest rates, and weaker global equity markets. Macro strategies were the strongest performers, as trend-followers benefited from a stronger U.S. dollar and rising oil prices. Equity hedge strategies declined as weakness in U.S. and European equities weighed on fundamental managers, while relative value strategies were pressured by higher rates and volatility. Event-driven strategies posted more modest declines amid weakness in special situations and merger arbitrage.

September highlighted a growing divergence across real assets. Energy markets moved higher as renewed supply disruptions and ongoing tensions in the Middle East pushed oil prices higher, while industrial metals weakened amid concerns that tighter financial conditions could slow global demand. Gold retraced a portion of its earlier gains as a stronger U.S. dollar and rising Treasury yields reduced the appeal of non-income-producing assets. Higher yields also weighed on REITs and infrastructure equities, which remained under pressure as investors adjusted to a higher-for-longer interest rate environment. Bitcoin advanced during the month, supported by continued demand for alternative assets despite a more challenging backdrop for risk-sensitive markets.