Quarterly Client Letter: 2026 Q3
October 2026
The markets advanced over the last quarter, with the S&P 500 up 2.25% and the Nasdaq up 3.15%. One phrase was increasingly on investors’ and economists’ lips: interest rate hike.
In mid-September, the Federal Reserve raised its benchmark interest rate a quarter of a percentage point, bringing its target range to 3.75% to 4%. The move was highly anticipated, as inflation has remained persistently above the Fed’s 2% long-term goal. The Personal Consumption Expenditures price index—the Fed’s preferred inflation gauge—rose 0.3% in August to 3.4% from the same time last year.
Signs that economic growth remains strong and relatively healthy job numbers likely helped reassure the Fed that the economy was strong enough to withstand a rate hike without risking a damaging slowdown.
As is often the case when interest rates rise, there’s been a lot of commentary about what the move could mean for consumers, businesses and investors. Some worry that higher borrowing costs will put pressure on companies and consumers, potentially slowing economic growth and the stock market. Speculation about a potential back-to-back hike this fall has added to those concerns.
What should investors make of the latest rate increase?
Small Rate Hikes Are a Normal Part of the Cycle
This was the first time the Fed had raised rates since July 2023, which may help explain why it attracted so much attention. But quarter-point hikes are not unusual historically. The Fed has raised and lowered rates throughout economic cycles as a normal response to changing conditions.
Your portfolio was built around your long-term financial goals, time horizon and tolerance for market risk, as well as the reality that economic conditions will change over time. A well-diversified portfolio is designed to navigate those cycles without requiring you to continually react to each new economic development.
The Pros and Cons of Higher Treasury Yields
The recent rise in 10-year Treasury yields—which climbed to about 5.3% by the end of September—has received considerable attention. Higher yields can increase borrowing costs across the economy and make Treasury bonds more competitive with stocks and other investments, including corporate bonds. Those effects can make capital more expensive for businesses, particularly industries that rely heavily on borrowing—including those involved in the recent AI boom.
For individual investors, however, higher yields can also create opportunities.
When interest rates rise, the prices of existing bonds fall. That dynamic can weigh on bond funds in the short term. Higher rates can be good for bond fund investors over time because newly purchased bonds can provide greater income.
Likewise, investors today can lock in relatively high yields with little to no credit risk. A hypothetical $10,000 investment in a 10-year Treasury yielding 5% would generate $500 in annual interest. By comparison, 10-year Treasury yields were around 1% in 2020—so the same investment would have generated income of only about $100 a year.
Keeping the Bigger Picture in View
Interest rates will continue to move as the economy changes, and markets will continue to respond. But a single rate hike decision—or even several—doesn’t necessarily call for a change to a long-term investment strategy.
If you have questions about what higher interest rates could mean for your portfolio or whether your current strategy remains aligned with your goals, please reach out. We’re happy to discuss it with you.
