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Midterm elections, capital markets, and the economy
October 1, 2026
Market News
Market analysis
September 14, 2026
Rising energy prices, persistent inflation and higher interest rates challenged markets last week, while economic resilience, earnings growth and diversified income opportunities supported investors.
Number of the week:
8.8%
The increase in Brent crude oil prices last week.
Term of the week:
Collateralized loan obligation (CLO)
A single security created by pooling loans. CLOs are often backed by corporate loans with low credit ratings or loans taken out by private equity firms to conduct leveraged buyouts. The pool of loans is typically restructured into tranches of differing risk and return levels.
Quote of the week:
The U.S. Consumer Price Index rose 3.4% from a year earlier, matching the prior pace. Prices excluding food and energy increased 2.4% from a year ago, while the monthly increase exceeded expectations and reached its fastest pace since April. Wholesale prices climbed 5.4% over the past year. Together, these readings show how energy pressures are spreading through transportation, production and household expenses. They also leave policymakers with less room to lower interest rates while price growth remains above desired levels.
― Bill Merz, CFA, Senior Vice President, Head of Capital Markets Research and Portfolio Construction, U.S. Bank
U.S. Bank Asset Management Group
Daniel Farley, CFA
Chief Investment Officer
Kaush Amin, CFA
Head of Private Market Investing
Chad Burlingame, CFA, CAIA
Head of Impact Investments
Thomas Hainlin, CFA
National Investment Strategist
Robert Haworth, CFA
Senior Investment Strategy Director
William Merz, CFA
Head of Capital Markets Research
William Northey, CFA
Senior Investment Director
Terry Sandven
Chief Equity Strategist
Global economy
Quick take: Higher energy costs and persistent inflation cloud the global growth outlook, while steady employment sustains consumer spending despite weaker confidence among households and small businesses.
- Conflict raises risks to global energy supplies. The U.S. and Iran traded heavy strikes, with U.S. forces hitting five Iranian oil tankers. Houthi attacks also damaged a Saudi pipeline that offered an alternative route outside the Strait of Hormuz. Saudi crude oil production fell to its lowest level since 1990 as renewed hostilities constrained export routes. A prolonged disruption could raise fuel costs, keep inflation elevated and complicate interest rate decisions around the world. The conflict links a regional security shock directly to the global outlook through oil production, shipping access and consumer energy bills.
- Inflation showed little progress in August. The U.S. Consumer Price Index rose 3.4% from a year earlier, matching the prior pace. Prices excluding food and energy increased 2.4% from a year ago, while the monthly increase exceeded expectations and reached its fastest pace since April. Wholesale prices, a measure of business costs, climbed 5.4% over the past year. Japan also reported a 7.6% increase in wholesale prices as fuel costs rose. Together, these readings show how energy pressures are spreading through transportation, production and household expenses. They also leave policymakers with less room to lower interest rates while price growth remains above desired levels.
- Employment is steady but confidence is weakening. Weekly unemployment claims remain low and continuing claims edged lower. ADP reported a modest gain of 12,000 jobs, pointing to slow but still-positive hiring. Continued job and wage income helped consumers keep spending, providing a cushion against higher energy prices and geopolitical uncertainty. At the same time, the University of Michigan Consumer Sentiment Index fell to a near-record low; inflation expectations rose and the one-year economic outlook weakened. Small business optimism also slipped, with owners reporting softer sales and higher costs.
Equity markets
Quick take: Stocks lost ground last week as oil prices and interest rates rose, but strong profit growth and sustained investment in artificial intelligence (AI) provided a counterweight to the market’s weekly volatility.
- Stocks retreated, led by smaller U.S. companies. Major equity indexes fell between 0.2% and 2.4% last week. Small-company stocks dropped 2.4%, underperforming the S&P 500 as higher Treasury yields and greater investor caution pressured the broader market. The S&P 500 lost 0.8%, developed international markets fell 1.4% and emerging markets eased 0.2%. Nine of the 11 S&P 500 sectors finished lower. Investors responded to oil prices, inflation and expectations for Federal Reserve policy.
- Energy stood apart from the broader market. The sector gained 2.1% as crude oil moved above $100 per barrel amid concerns about Middle East supply and shipping routes. Energy has advanced 47.4% in 2026, more than twice the 23.7% return for Information Technology, the next-best sector. Communication Services joined Energy as the only other sector to gain last week. The results reflected a concentrated response to higher oil prices rather than a broad shift toward economically sensitive or lower-priced stocks.
- Profit growth remains a foundation for higher stock prices. Analysts expect S&P 500 earnings to grow 32% in 2026 and 15% in 2027, estimates that changed little during the week. Rising profits, rather than investors paying increasingly higher prices for each dollar of expected earnings, have driven much of the market’s advance. Even so, stock prices remain high relative to projected profits, though below previous market peaks. Future returns will therefore depend more heavily on companies delivering the growth investors expect.
- Oracle reinforced demand for AI infrastructure. Oracle reported cloud growth above 100%, a record backlog and strong bookings, showing that demand for AI computing capacity still exceeds available supply. The company also plans to invest about $90 billion to $95 billion in AI infrastructure this fiscal year. Investors welcomed the demand but still questioned whether spending at that scale will produce lasting revenue, stronger cash generation and attractive returns. Upcoming third quarter earnings reports should offer more evidence on the path from investment to applications and profits.
Bond markets
Quick take: Treasury yields rose last week, with inflation and oil prices increasing expectations for additional central bank rate increases, while strong demand at government bond sales showed that investors still value income.
- Treasury yields rose as investors reassessed inflation. Bond prices fell while yields climbed in response to persistent inflation, higher oil prices and a smaller-than-expected Treasury Department purchase of longer-term government bonds. Investors also increased expectations for a Federal Reserve rate increase at this week’s meeting. Demand for newly issued debt remained strong, however. A 10-year Treasury sale drew its strongest interest in a decade, and a 30-year sale proceeded smoothly even at the highest yield since 2001. These results show that investors still seek higher income despite near-term rate uncertainty. They also highlight the choice facing investors: Today’s yields offer more income, but bond prices can remain volatile while inflation and policy expectations shift.
- Global central banks kept inflation at the forefront. Markets assigned a 90% probability to a 0.25% Federal Reserve rate increase after the latest inflation reports. The European Central Bank raised its key rate by a quarter point to 2.5%, its second increase since the U.S.-Iran conflict began. Policymakers warned that higher energy costs could keep inflation above target into 2027. Investors also expect another European increase in October and a possible Bank of Japan rate increase this week, reinforcing a broad shift toward tighter policy. Higher energy costs have made those decisions more difficult because they can slow economic growth while adding to inflation at the same time.
- Longer-term bonds absorbed the largest declines last week, with Treasury securities falling 1.6% because their prices typically move more when interest rates change, compared with a 0.4% decline for short-term Treasuries. Broad high-quality taxable bonds lost 1.1%, municipal bonds slipped 0.8% and below-investment-grade corporate bonds fell 0.7%. Bank loans and other investments whose income adjusts with short-term rates finished roughly unchanged. The results show how a bond’s maturity, credit quality and sensitivity to interest-rate changes can affect its performance when rates rise.
Real assets
Quick take: Oil lifted broad commodities as the Iran conflict threatened supply routes, while elevated interest rates weighed on publicly traded real estate and infrastructure despite their long-term income potential.
- Publicly traded real estate moved lower across property types last week. Broad U.S. real estate investment trusts fell 1.1%, hurt by escalating financing costs from rising Treasury yields and increased competition from bonds for income-seeking investors. Healthcare properties, the largest segment at nearly 20% of the market, held up best with a 0.4% decline. Office properties, the smallest segment, fell almost 4.8%. Residential, self-storage and communications properties each lost more than 2%. Data center properties slipped 1.7% but still hold a gain of about 31% in 2026 on demand tied to artificial intelligence. Broad real estate retained a year-to-date gain of more than 12%, despite the weekly pullback.
- Global infrastructure lost 1.6% last week, although pipelines and other energy-transport assets finished nearly unchanged. Partnerships that own pipelines and similar assets posted a small gain. Utilities slipped 0.9%, North American energy infrastructure shed 1% and industrial companies lost 1.1%. These businesses combine essential physical assets with ongoing income. In some cases, contracts or regulated pricing can adjust over time, which may help revenue respond when inflation raises operating and replacement costs.
- Oil gains outweighed declines across other commodities. Broad commodities rose 1.7%, with U.S. crude gaining 9.7% and Brent crude climbing 8.8% due in large part to the U.S.-Iran conflict. The national average diesel price exceeded $6 per gallon for the first time; refinery disruptions linked to conflicts in the Middle East and Russia-Ukraine strained supply. Natural gas dropped 5%, gold eased 2%, silver lost about 2.3% and copper slipped 2%. Commodities can help offset inflation in a diversified portfolio, but rapid changes in supply and demand can produce sharp price swings.
This information represents the opinion of U.S. Bank. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.
Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.
Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The Institute of Supply Management Manufacturing Index, also called the Purchasing Manager’s Index, measures manufacturing activity based on a monthly survey, conducted by the Institute for Supply Management, of purchasing managers at more than 300 manufacturing firms.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities is subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer’s ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).
©2026 U.S. Bank
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