The Weekly Update 10/16/2026™
Created by Jim Lunney, CFP®
A Monster Mash of a Market
Well, that was something! September stole some of October’s thunder. The S&P 500 finished the month roughly flat, with only a small dip, while the tech-heavy Nasdaq actually gained ground, powered once again by artificial intelligence (AI) companies. Underneath, though, most of the market had a rough month: the Dow and smaller-company stocks fell noticeably, and nine of the eleven major stock sectors ended lower. After the Federal Reserve raised rates in mid-September, the yield on the 10-year Treasury bond kept climbing, and on October 5 it reached its highest level since 2002. Yields eased on October 6, and the S&P 500 and Nasdaq both closed at record highs, with the S&P closing above 7,800 for the first time. As always, below are what I believe are 3 key market drivers for the broader markets.
Politics
The 2026 midterm elections are on Tuesday, November 3, with all 435 House seats and roughly a third of the Senate on the ballot. Historically, midterm years have been the weakest and bumpiest stretch of the four-year presidential cycle, with average peak-to-low pullbacks of nearly 19%, largely because markets dislike uncertainty about future tax, spending, and trade policy. The good news is what tends to come after: the S&P 500 has been positive in the 12 months following every midterm election since 1950, regardless of which party won or lost seats. So far, 2026 has been kinder than the typical midterm year, with the S&P 500 up roughly 12% through September. History is a guide, not a guarantee, but it's a good reminder that elections tend to matter less to long-term returns than earnings, inflation, and interest rates.
In Washington, Congress avoided a fall shutdown this year by passing temporary funding early, which keeps the government open through December 11. That pushes the next funding deadline past the election, so it could come back into the headlines in December. On September 30, the Senate fell short of the votes needed to advance two House-passed bills. One to limit stock trading by members of Congress (shocker), and one aimed at keeping the electricity costs of new AI data centers off household utility bills. On trade, the U.S. and China extended their tariff truce to January 10, 2027, and following President Xi's late-September state visit, the two countries announced a framework to cut tariffs on roughly $30 billion of each other's goods. That eases one source of uncertainty for companies with global supply chains, though rules on advanced chips and technology exports remain an open issue worth watching for the semiconductor and AI stocks that have led this market.
Economics
On September 16, the Federal Reserve raised its key short-term interest rate by a quarter of a percentage point to a range of 3.75%–4.00%, its first increase since 2023. The reason is inflation. The Consumer Price Index (CPI, the government's main measure of the cost of everyday goods and services) was up 3.4% over the past year in August, with gasoline prices a big contributor amid higher oil prices tied to the conflict involving Iran. The Fed's preferred inflation gauge, PCE, was also up 3.4%. Most Fed officials expect one more rate increase this year, but after a softer jobs report, markets now see about an 80% chance the Fed holds steady at its next meeting on October 27–28, while still leaning toward a hike by its December meeting. Why does this matter for you? Higher rates make borrowing more expensive and can weigh on stock prices, especially for smaller companies and rate-sensitive sectors like real estate and utilities, which is exactly what we saw in September.
The job market cooled in September: employers added just 29,000 jobs, well below the roughly 84,000 economists expected, and the unemployment rate ticked up to 4.2% from 4.1%. Wages grew 3.0% over the past year, the slowest pace since 2021. Meanwhile, the broader economy looks sturdier than the jobs number suggests: second-quarter GDP (the total value of everything the economy produces) was revised up to a 2.2% annual growth rate, and consumer spending jumped in August. Corporate America is also in strong shape heading into earnings season, which starts with the big banks on October 13. Analysts expect S&P 500 earnings to grow about 29.5% from a year ago, which would be the third straight quarter of growth above 25%. Strong earnings are ultimately what drive stock prices over time, so that is a genuinely encouraging backdrop.
Investor Sentiment
Our main mood gauge, the CNN Fear & Greed Index, combines seven market signals into a single score from 0 (extreme fear) to 100 (extreme greed). As of the morning of October 7, it read in the low 40s, in "Fear" territory just below neutral. That compares with about 45 (neutral) a month ago, and it has recovered from around 30 just a week ago. It might seem odd for investors to be fearful with the S&P 500 at a record high, but this reflects September's split market: the averages are being carried by a relatively small group of large tech and AI companies, while many other stocks have lagged. Investors are cautiously optimistic, not giddy, and that's a reasonably healthy place to be. Historically, extreme readings are often contrarian signals: extreme fear has sometimes marked good long-term buying opportunities, while extreme greed can be a sign of overconfidence. Today's reading is close to the middle, sending no strong signal either way.
The Bottom Line
We had rising yields, a rate hike, and a cooling job market, record highs, strong corporate earnings, and progress on trade. Through it all, the investors who were rewarded were the ones who stayed invested rather than reacting to every headline. Midterm-year volatility, Fed meetings, and the odd sharp week are a normal part of investing, and staying invested through them has historically been the best path to strong long-term returns. Of course, everyone's situation is different, and if you have questions about your portfolio, upcoming goals, or how any of this affects you, please reach out.
P.S. I write and post The Weekly Update every Friday versus emailing so I don't fill-up the client family's email inboxes. If you'd like to read them each Friday, just go to TWSG website at https://www.wealthstratgroup.com. Once there, click on my photo and it takes you to my investment philosophy and methodology page. In that verbiage are green hot links to The Weekly Updatelibrary as well as the library for the monthly piece I write and e-blast each month, The Seven Signs of a Changing Economy.™
Thank you for your trust and confidence. As always, I am interested in your thoughts, comments, and observations. Feel welcome to call, email or stop by the office and say Hi.
Respectfully,
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
The Wealth Strategies Group
7761 Shaffer Parkway, Suite 100
Littleton, CO 80127
Ph. 303-933-2107 Fax 303-933-7175
*The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Investing involves risk. Loss, including loss of principal, may occur. No strategy assures success or protects against loss. All performance referenced is historical and there is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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