September 2026 Market Update
The September FOMC meeting was the third meeting for new Federal Reserve Chairman, Kevin Warsh. The Committee decided to raise the federal funds rate to 3.75%-4.00%. 10- and 30-year interest rates are now at the highest level since 2003.
Ten and Thirty Year Interest Rates
The size of the Federal Reserve’s balance sheet remains stable. The financial system is extremely dependent on the small asset purchase program (QE) the Fed initiated at the December 2025 FOMC meeting. The small asset purchase program will need to grow much larger in the months ahead to support a deteriorating consumer economy and the stock market, which has exacerbated inflation and affordability conditions consumers are experiencing.
Federal Reserve Balance Sheet and Bank Reserve Levels
Treasury Secretary, Scott Bessent announced a treasury buyback program on August 19th. The announcement came after 10- and 30-year interest rates jumped above 4.5% and 5% levels. The buyback plan was initiated in hopes of reducing longer term interest rates (mortgage rates), but since the announcement 10- and 30-year rates have risen to 5.29% and 5.6%, sending 30-year fixed mortgage rates back above 7.5%.
30 Year Fixed Mortgage Rates
The market continues to experience a tale of two economies. On one hand we have the consumer economy, (housing, food, and retail), and on the other we have the manufacturing and industrial economy, dominated by artificial intelligence and data center spending. Housing conditions remain challenged, homebuilder margins are shrinking while mortgage rates rise, total building permits are at recessionary levels and pending home sales are near the lows from the 2008-2009 housing market crash. The economy has seen a short-term upswing in cyclical employment conditions, which is the result of Ai and data center spending and is driving the inflation narrative.
Building Permits
Market participants are split on the Feds’ decision to raise interest rates. Throughout history when the Fed begins a rate hiking cycle, they usually rise at least three times. The market is currently pricing this in. This rate hike cycle is controversial due to the tale of two economies described above. The already struggling consumer and housing economy will experience more downward pressure from the rate increases while the Ai and data center economy, subsidized by government spending, will need much higher interest rates to experience any downward pressure. These factors are causing the distribution of market returns to become narrower, forcing investors further into technology stocks and out of other areas of the market. It remains to be seen whether the Feds decision to start a new rate hike cycle will be judged as a policy error or not. Due to a struggling consumer and housing economy, we believe it is very possible the market will be forced to shift away from its belief that the Fed will raise interest rates two more times this year and may even shift toward the Fed cutting interest rates before the end of 2026.
U.S. Pending Home Sales
The Taylor Rule, a formula which incorporates the unemployment rate, GDP, and the inflation rate to compute what level interest rates should be, currently suggest interest rates should range between 4.8%-6.1%. The Fed is currently at 3.75%-4.00%, a full point below the most conservative Taylor Rule estimate. As interest rates continue to normalize investors may begin to see stock market valuations normalize.
Taylor Rule Fed Funds Rate Estimate
Many independent investors, financial advisers, and speculators disagree with our market and economic assessment to remain disciplined investors, concentrated on value, but Warren Buffett and Berkshire Hathaway seem to agree. Berkshire Hathaway currently holds approximately thirty-five to forty percent of its assets in cash, the highest level in its history.
The wealth effect from the stock market is currently at its highest level in history. More American households now rely on a rising stock market than ever before. In the 1980's the wealth effect from the stock market stood only around 15%. During the Dot Com bubble the wealth effect from the stock market reached 38%. The wealth effect from the stock market now stands at an all time high of 48%. These levels are concerning for investors and retirees as the government is starting to panic about controlling longer term interest rates leading to rising mortgage rates.
Wealth Effect of the Stock Market
The following charts are important to consider for investors choosing an asset allocation mix. Investing in the S&P 500 at a price to earnings ratio of twenty-two times or greater has historically led to a negative 10-year return. The valuation at which an investor enters the stock market significantly matters to their performance and return.
S&P 500 10 Year P/E Ratio & Buffett Indicator Standard Deviation from Long Term Trend
Our MacroVex Capital, S&P 500 fair value estimate model currently indicates fair value for 2025 earnings of $268 and 2026 earnings of $349 between 4,155 and 5,370, down -46% and -30% from the S&P 500, 2026 September closing price of 7,670.
We believe throughout the rest of 2026 there will be major fiscal and monetary changes that provide great investment opportunities. Our recommendation is to position portfolios conservative, defensive, and able to endure and capitalize on an economic downturn. Getting paid to wait for growth assets to be priced at discounts, while being positioned to benefit from bond price appreciation as interest rates decline from downward economic pressure, continues to be a profitable and rewarding strategy. We remain patient and focused on managing risk through 2026.
Disclosure: Investing involves risk, including the possible loss of principal and fluctuation of value. Past performance is no guarantee of future results. This letter is not intended to be relied upon as forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date noted and may change as subsequent conditions vary. The information and opinions contained in this letter are derived from proprietary and nonproprietary sources deemed by Macrovex Capital, LLC to be reliable. The letter may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projection, and forecasts. There is no guarantee that any forecast made will materialize. Reliance upon the information in this letter is at the sole discretion of the reader. Please consult with a Macrovex Capital, LLC financial advisor to ensure that any contemplated transaction in any securities or investment strategy aligns with your overall investment goals, objectives, and tolerance for risk. Additional information about Macrovex Capital, LLC is available in its current disclosure documents, Form ADV and Form ADV Part 2A Brochure, which are accessible online via the SEC’s investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using CRD #300692. Macrovex Capital, LLC is neither an attorney nor an accountant, and no portion of this content should be interpreted as legal, accounting or tax advice
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