Markets absorbed another week of sharp moves in oil and Treasury yields, but the major stock indexes finished nearly unchanged.
The biggest news of the week was the Federal Reserve raising interest rates by 0.25%, its first increase since 2023. Policymakers’ projections pointed to one more increase before year-end, but Chair Warsh’s press conference sounded more concerned about inflation and the strength of the economy than investors expected.
The economic data supported that caution. Retail sales were stronger than forecast, jobless claims fell to a historically low 196,000, and regional manufacturing surveys showed continued expansion. At the same time, several price measures moved higher.
The week reinforced the market’s current tension. Strong earnings expectations and healthy economic growth continue to support stocks, while elevated oil prices, long-term Treasury yields near 5% and uncertainty about the Fed limit the market’s progress.
🔑 Three Market Takeaways from Last Week
🏦 1. The Fed Hiked Rates and Left Markets Wanting More Clarity
The Fed increased its benchmark rate by 0.25%, the first hike in three years. The decision itself was widely expected, and the Fed’s updated projections suggested one more increase before the end of 2026.
Those projections initially reassured investors. Only four of 18 Fed officials favored more than two hikes this year, and the median projection showed a rate cut late in 2027. That appeared consistent with limited increases rather than a long series of rate hikes.
Chair Warsh’s press conference changed the tone. He emphasized persistent inflation risks, a very strong economy and limited evidence that current rates were restraining activity. Bond yields rose and stocks declined as he spoke.
By the end of the week, futures markets assigned an 88% probability to another hike by year-end and more than a 70% probability to two additional hikes in 2027. Markets can likely absorb one or two increases; a broader rate-hiking cycle would be a more meaningful headwind.
📊 2. Strong Growth Supports Stocks but Complicates the Rate Outlook
August retail sales increased 1.2%, ahead of the 0.7% forecast. Higher gasoline prices contributed to the headline, but the control group, a measure closely tied to underlying consumer spending, also rose a strong 1.4% versus the 0.4% estimate.
The labor market also remains firm. Weekly jobless claims fell from 206,000 to 196,000, providing little evidence that employers are pulling back or that household income and spending are under immediate pressure.
September manufacturing surveys from New York and Philadelphia showed expanding activity, but their price components rose noticeably. Businesses reported paying and receiving higher prices, another reminder that inflation pressure has not disappeared.
For markets, strong growth cuts both ways. It supports corporate earnings and reduces recession risk, but it also gives the Fed more room to keep rates high if inflation remains stubborn.
🛢️ 3. Oil and Treasury Yields Still Hold the Key
The 10-year Treasury yield moved above 5% last week and reached its highest level since 2007 before easing late in the week. Rising oil prices, firmer inflation data and the Fed’s hawkish message all contributed to the increase.
Oil remained the most important short-term driver. New disruptions around the Persian Gulf pushed prices higher through Wednesday. News that Saudi Arabia’s East-West pipeline could restart sooner than expected helped oil and yields retreat on Thursday and Friday.
That late-week relief allowed stocks to recover most of their earlier losses. Positive developments in technology and artificial intelligence also provided support, leaving the S&P 500 nearly flat despite considerable volatility beneath the surface.
The market remains caught between powerful supports, including earnings growth and a resilient economy, and equally clear headwinds from oil, long-term yields, inflation and geopolitical uncertainty.
🧭 Inside Advance & Protect
Each week we explore one principle behind our Advance & Protect philosophy – and how it helps us navigate today’s markets.
Does your portfolio also need protection for your bond allocation?
Bonds are often described as the stable part of a portfolio, but longer-term bonds can lose meaningful value when interest rates rise quickly. The recent move in Treasury yields is a clear example.
That is why our Advance & Protect process also includes a specific buy & sell indicator for bonds.
When the bond signal trend turns negative, Advance & Protect seeks to reduce the portfolio’s sensitivity to further increases in rates rather than assuming every type of bond will provide the same protection.
That adjustment can involve selling interest-rate-sensitive bonds and moving fixed-income positions toward short-duration holdings, floating-rate exposure and cash equivalents. These areas are generally less affected by rising long-term rates.
Equity decisions remain separate. Stock indicators can remain positive even when the bond trend weakens, so a change in fixed income does not automatically require a change in stock exposure.
The adjustment is not a permanent rejection of bonds or a prediction that rates must keep rising. It is a response to current evidence. If the bond trend improves, the process can restore interest-rate exposure.
Advance & Protect Insight: A diversified portfolio needs more than one risk decision. When risk appears in fixed income, the bond allocation can change without requiring an unrelated change in stock exposure.
👀 This Week: Three Things That Matter Most
🛢️ 1. Whether Diplomacy Can Improve Oil Flows
The United Nations General Assembly may create an opportunity for diplomatic progress between the U.S. and Iran. Markets do not require a complete resolution; credible steps that increase oil flows or reduce threats to shipping could be enough to lower crude prices.
Improved oil supply could also pull Treasury yields lower and remove a major headwind for stocks. Additional attacks or shipping disruptions would likely have the opposite effect and could push markets toward new short-term lows.
📊 2. The First Broad Reading on September Growth
Wednesday’s flash composite purchasing managers’ index will provide the first broad national look at business activity in September. Investors want the index to remain comfortably above 50, which signals continued expansion.
A stable reading would support confidence that the economy remains healthy. A result far above expectations, however, could strengthen the case for additional Fed rate hikes.
The survey’s price components will matter as much as the headline. Another noticeable increase would reinforce concerns that higher energy costs are spreading more broadly through the economy.
🏭 3. Business Spending and Labor Market Data
Weekly jobless claims arrive Thursday, followed by durable-goods orders on Friday. Claims will show whether the labor market remains exceptionally tight, while durable goods will provide a read on business investment.
Business spending has remained an important source of growth, helped by ongoing investment in data centers and artificial-intelligence infrastructure. A solid report would support the economic outlook.
As with the PMI reports, the most market-friendly outcome would be steady growth without a large upside surprise that leads investors to price in a longer rate-hiking cycle.
🧭 Final Thoughts
The S&P 500’s small weekly decline masked an important tug-of-war. Strong earnings expectations and resilient economic activity continue to support stocks, while oil near $100, long-term yields near 5% and inflation uncertainty limit further gains.
The week also illustrated why stocks and bonds need separate risk controls. Rising long-term rates can pressure interest-rate-sensitive bonds even when the underlying outlook for corporate earnings and the stock market remains constructive.
A disciplined process does not need to predict every geopolitical headline or Fed comment. It needs to identify which underlying trend has changed and adjust the affected part of the portfolio without allowing short-term emotion to determine the strategy.
Ready to Explore Advance & Protect?
Every investor’s financial situation—and every financial plan—is unique.
If you’d like to learn how our Advance & Protect investment philosophy combines disciplined market analysis with comprehensive financial planning, we’d be happy to schedule a complimentary consultation.
Our goal isn’t simply to help clients pursue investment returns. It’s to provide a thoughtful, evidence-based process designed to help them navigate changing markets while remaining focused on their long-term financial goals.
Markets will always provide reasons for both optimism and concern. A disciplined process can help keep either emotion from becoming the investment strategy.
Warm regards,
The Barzideh & Nadeau Wealth Management Team
Thanks for reading! As always, we’re here to help you navigate these markets with confidence and clarity. Stay safe and informed—see you next week.
