September 2026

Insights & Observations

Economic, Public Policy, and Fed Developments

• August was bookended by two very different jobs reports that ultimately did little to change the prevailing “low-fire, low-hire” narrative. July’s labor report was bad, with a net loss of 23k jobs falling well short of expectations for a gain of +82k, coupled with significant downwards revisions. Large detractions from public education appear to be seasonal, and average hourly earnings remained positive at +0.1, suggesting the labor market was not in free fall. But this report ended the strengthening employment consensus.
• August’s, meanwhile, was the inverse of July; +162k new jobs nearly triple the consensus +55k, with positive prior period revisions. Average hourly earnings were revised up, as well; they had been nearly flat since March, but post-revision, remain soft, yet much better. And, after more than a year of steady declines, we saw a large upwards jump in the Household Survey’s estimate of the workforce. The average workweek also rose a tenth above its recent 34.2-34.3 range. The net picture would be little changed for those not seeing a report since June, but some of the details look more encouraging.
• July’s CPI report, released in August, was interesting in that while gas prices rose steadily, BLS’s use of an average of daily prices to calculate gas price inflation led to a detraction as the monthly average was lower than June. The upwards trend makes a large energy contribution more likely in August, however. Gas prices alone should contribute about 0.12 points to CPI, which risks the split between headline and core coming in larger than the 0.2% the current consensus of +0.4% and +0.2% implies.
• A weak retail sales report during a period of rising gas prices suggests pressure at the pump is weighing on consumer spending and core inflation may be light. Retail sales contracted -0.6% vs. expectations for +0.1%. Prime Day moving forward from July to June has been cited by analysts as a factor. This wasn’t a surprise though, and we think this report reflects more deal-driven spending pull-forward than expected and less incremental new spending. Walmart’s earnings call in late August suggested as much, referencing customers as increasingly deal-focused. This supports our view that higher gas prices are containing rather than boosting core inflation. Fed Chair Kevin Warsh has suggested the 2Yr UST’s rise was “the market doing the work” for the Fed. Instead, it may be the gas pump.
• Treasury Secretary Scott Bessent announced two major changes last month. First, the Treasury “at least doubled” long duration note buybacks from $2 billion. With 85% of current issuance maturing one year and in, this is effectively a modest form of yield curve control, with the Treasury simultaneously buying long and selling short.
• Bessent also indicated that the Treasury will begin purchasing longer-dated issues using its Treasury General Account (TGA), effectively the government’s checkbook. Standing at $935 billion as of 8/20, this could be a significant source of demand for Treasuries, although it poses two risks. Because this account is held outside of the banking system, using it to fund purchases is a QE-like source of liquidity injection at a time when inflation is simmering above target. And the TGA’s size is also generally around $950 billion, but during federal shutdowns it becomes the government’s primary source of funding and is drawn down. Significant Treasury holdings here would make the US Government a large net seller of Treasuries at a politically costly time. After initially falling on both headlines, yields retraced and are now higher than before the announcements.

Sources: Bureau of Labor Statistics, U.S. Census Bureau

Equity News and Notes

A Look At The Markets

• U.S. equities moved higher in August as the major averages overcame volatility to extend their summer gains. The S&P 500 (+2.6%) and Nasdaq (+3.9%) enjoyed their best August in five years as growth and Technology shares reasserted leadership. The DJIA advanced +1.3% and is now up 15 of the past 16 months for the first time since 1936. The Russell 2000 added +0.9% but lagged its large-cap counterparts as higher interest rates weighed on more economically and rate-sensitive companies. The equal-weight S&P 500 (RSP) trailed the market-cap weighted index by a modest 58bps, although gainers outnumbered losers and the RSP achieved 5 all-time highs over the month. Only five sectors beat the broader index led by Energy as WTI crude rose +1.3%. Despite some late weakness, the S&P 500 reached a fresh all-time high in early August and finished comfortably ahead of its July closing level.
• Strong corporate earnings and renewed AI enthusiasm were the primary drivers of the market’s advance. Large-cap growth stocks rebounded from July weakness, while better-than-expected results from several AI-related companies reinforced confidence that the investment cycle remains intact. However, several AI-adjacent and hardware names sold off despite better-than-expected earnings, underscoring that investors are becoming more discerning about margins, costs, and cash-flow generation within the AI trade.
• Through the end of August, 86% of S&P 500 companies had reported earnings above estimates, well ahead of the 10-year average of 76%. Earnings grew +52% YoY in Q2, the highest since Q2 2021 when the economy was emerging from pandemic shutdowns. The strength of the quarter helped investors look past a mixed economic backdrop, including slower employment growth, softer consumer confidence, and acute geopolitical risk.
• The Federal Reserve and interest rates remain counterweights to a positive earnings story. Inflation has moderated from its post-pandemic highs but remains above the Fed’s 2% target, limiting policymakers’ flexibility. At the Jackson Hole symposium, Fed Chair Kevin Warsh maintained a hawkish tone and emphasized that price stability remained the central bank’s predominant focus. Investors responded by increasing the probability of another rate hike, pushing short-term UST yields higher and pressuring rate-sensitive areas of the market, including small-cap stocks, Utilities, and Real Estate. Economic data is sending a mixed message: Q2 GDP expanded at a +1.5% annualized rate, supported by consumer spending and business investment, while hiring slowed without signaling broader labor weakness. This combination of resilient growth, persistent inflation, and restrictive monetary policy left markets balancing strong corporate fundamentals against the prospect of interest rates remaining higher for longer.
• Seasonal headwinds are gathering heading into the midterm elections. September is the market’s most challenging month with the S&P 500 averaging a decline of -0.6% since 1950 and the Nasdaq averaging -0.8% since its inception in 1971. Uncertainty around elections often creates more of headwinds as the average decline (-0.8%) deepens in midterm years. However, context is important and the prevailing trend heading into September can potentially offset any weakness. In years when the S&P 500 is in a confirmed uptrend, as it is now, the average return has improved to +0.3%. Markets have historically performed well following midterm elections with an average return of +12.6% over the following 12 months. Also favorable, 2027 will be year 3 of the presidential cycle, historically the strongest year of the four years with average returns of nearly +16%.
• Looking ahead, the path of inflation and monetary policy will remain central to the market’s direction as investors evaluate upcoming employment and inflation reports, and the September Fed meeting. Expectations have shifted considerably, raising the potential for volatility in both equity and fixed income markets. At the same time, strong earnings growth and robust AI investment provide fundamental support for equities. Elevated valuations and renewed concentration in large-cap Technology warrant some caution, particularly if interest rates move higher or earnings expectations soften.
• We advise clients to avoid reacting to short-term headlines and instead focus on company fundamentals, valuation, and portfolio diversification. Market leadership is likely to rotate as economic and interest-rate expectations evolve, which should create opportunities beneath the surface of the major averages.

Sources: Bloomberg, FactSet

From the Trading Desk

Municipal Markets

• After July’s substantial repricing, August delivered some stability to the municipal market, particularly for maturities out to 10 years on the curve. This is despite Treasury yields being whipsawed by geopolitical and Fed-driven headlines.
• The municipal curve steepened in August with the front-end moving lower and maturities 12-years and out pushing higher in yield. Specifically, 1 to 5-year yields fell by 7bps, with the 7-year part of the curve dropping 5bps, the 10-year remaining flat, and 15 to 17-year yields increasing 13 to 17bps. The long end closed the month higher by 9bps.
• Diverging yield directions added 10bps of steepness to the 2-10s slope and 18bps to the 10-15s slope. The front-end slope stayed anchored as 2-5s closed the month at 31bps and we now see more attractive yield pick-up for duration extension within a relatively narrow maturity spectrum.
• Ratios moved in sync with yields as front-end ratios outperformed and tightened while longer ratios got cheaper in the face of Treasury volatility. Specifically, the 2-, 3- and 5-year ratios tightened by 2.2 to 2.9%, the 7-year got richer by about 1.4%, the 10-year was largely unchanged, and 20 to 30-year ratios moved wider by 2-3%. AAA Muni/UST ratios of 5-yrs and longer closed the month north of 60%, while the 10-year ratio revealed considerable value at 71%.
• According to JP Morgan, August set a record for new long term tax-exempt supply with $57.6B of issuance, surpassing the previous high set in October ’24 and becoming one of just 6 months to see issuance surpass the $50B mark.
• As the pace of supply set records, municipal fund subscriptions helped steady the market. Barclays reported that $6.5 billion came into municipal funds, with the largest inflows targeting national mandates, ETFs, and long-term funds.

Corporate Markets 

• Demand for Investment Grade Credit remains very strong, and a favorable technical backdrop has allowed spreads to remain in check. The YTD range has stayed narrow, with just 22bps separating the high and low. The Bloomberg US Corporate Index month-end OAS of 77bps is exactly where we began 2026 and only 3bps below the year’s 80bps average. Last year wasn’t much different as the market has operated in a tight range with nominal credit risk premiums for some time. 
• August saw record-setting issuance, with $163 billion of new debt coming to market. The previous August record of $136 billion was set in 2020. It’s worth noting that January, June, and July were all record setters, reflecting a very favorable environment for companies to raise debt. An historic AI capital expenditure boom is driving a good deal of Investment Grade offerings, although financials and utilities have also been active.
• Market participants are becoming more selective given today’s tight range in credit spreads. While the funding landscape for most issuers remains healthy, order attrition on many deals has been evident as issuers grapple with comparative UST rates. 
• The UST curve has moved in a bear flattening manner with short rates recently selling off faster than longer-dated bonds. This dynamic has been impacted by a more hawkish Fed tone and growing expectations of near-term rate hikes. Intermonth volatility has been evident for that reason, along with sustained Middle East conflict, and the Treasury’s announcement that it would expand its buyback capacity of longer-dated bonds. The latter is aimed at pushing down longer maturity yields although that has not been the result to date.
• On August 12^th Treasury auctioned off $42B of 10Yr notes at 4.68%, the highest level since 2007. The 30Yr auction posted a yield not seen since 2001 on the following day and hit an intramonth high of 5.31%. An elevated term premium is evident as investors are pricing in inflationary pressures, lack of fiscal discipline, and a Fed Funds rate hike in September.

Sources: Bloomberg, Bond Buyer, Barclays, JP Morgan, and Lipper Inc.

Financial Planning Perspectives

Preparing for Retirement: The Five Years Before You Leave Work

Retirement planning often focuses on one big number: “How much do I need to retire?” While accumulating sufficient assets is important, the transition from working to retirement involves much more than reaching a particular account balance.

The five years leading up to retirement can be especially important. This is the time to move from a long-term accumulation mindset toward developing a clear plan for how your assets, income, tax liabilities, and benefits ought to work together in retirement.

Here are five areas to consider:

1. Define What Retirement Will Actually Look Like

• Before determining whether your finances are ready, it is important to consider what retirement will look like on a day-to-day basis. Will you stop working completely or transition gradually? Do you expect to travel more? Relocate? Spend more time with family or pursue new hobbies?
• A clearer picture of retirement helps translate lifestyle goals into a realistic spending plan. While some expenses may decline after leaving work, others—particularly travel, healthcare, and leisure spending—may increase, at least during the early years of retirement.

2. Develop a Plan for Replacing Your Paycheck

• For many retirees, the most significant financial adjustment is moving from a regular paycheck to relying on Social Security, pensions, investment income, and retirement savings.
• The years immediately before retirement are an ideal time to evaluate your income sources and how much flexibility exists in your spending. This may include reviewing when to claim Social Security, coordinating pension benefits, and developing a withdrawal strategy for retirement accounts.
• Just as importantly, having several years of anticipated spending needs clearly identified can help reduce the likelihood of needing to sell investments during an unfavorable market environment.

3. Review Your Investment Risk

• As retirement approaches, portfolio risk deserves additional attention, but retirement does not necessarily mean eliminating risk. A retirement portfolio may need to support spending for 20, 30, or more years, therefore maintaining an appropriate allocation to growth-oriented investments can be very important. At the same time, investors should consider whether they have sufficient liquidity and lower volatility assets available to meet near-term spending needs.
• The goal is not simply to become more conservative with age, but rather to align the portfolio with your expected cash-flow needs, time horizon, and ability to withstand market volatility.

4. Plan for Taxes and Healthcare

• A transition into retirement often creates significant planning opportunities. Depending on the timing of retirement and other sources of income, some individuals may experience lower income years before required distributions and other income sources begin. Those years may present opportunities for strategies such as Roth conversions or managing capital gains, depending on an individual’s circumstances.
• Healthcare should also be a central part of the retirement discussion. For those retiring before Medicare eligibility, understanding how health insurance will be obtained and funded is essential. Medicare enrollment decisions, supplemental coverage, and potential long-term care costs should also be incorporated into a broader financial plan.

5. Make the Transition Deliberate

• The final years before retirement are an opportunity to test assumptions and address important details before they become urgent. Some things to consider include increasing savings, paying down high interest debt, reviewing insurance coverage, updating estate planning documents, and confirming beneficiary designations.
• Perhaps most importantly, retirement should be viewed as a transition rather than a single event. A thoughtful plan can provide greater clarity around how much you can spend, where your income will come from, and how your investments should support your lifestyle over time.
• The five years before retirement may be an ideal time to bring these pieces together. With careful planning, the transition away from a regular paycheck can reduce uncertainty and allow you to confidently embrace the next chapters.

Source: https://www.medicare.gov/basics/get-started-with-medicare/medicare-basics/working-past-65/retiree-insurance?utm, https://www.investor.gov/additional-resources/retirement-toolkit/managing-lifetime-income?utm, https://www.ssa.gov/benefits/retirement/planner/otherthings.html

This commentary reflects the opinions of Appleton Partners based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor. While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.  Specific securities identified and described may or may not be held in portfolios managed by the Adviser and do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed are, were or will be profitable. Any securities identified were selected for illustrative purposes only, as a vehicle for demonstrating investment analysis and decision making. Investment process, strategies, philosophies, allocations, performance composition, target characteristics and other parameters are current as of the date indicated and are subject to change without prior notice. Registration with the SEC should not be construed as an endorsement or an indicator of investment skill, acumen, or experience. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal.