The Federal Reserve raised interest rates by 0.25% this month, pushing the fed funds upper bound rate to 4%. For many investors, the immediate question isn’t what happened; it’s what comes next.
Our view is that this environment is creating opportunities, particularly in bonds.
Markets took the Fed interest rate hike in stride
The move was widely anticipated and met with minimal volatility. If anything, markets appeared to applaud the decision as a sign the Fed is serious about fighting inflation and staying true to its mandate. Equities headed for strong gains following the announcement.
Notably, markets also seemed to dismiss the idea of further hikes, even though the probability of at least one more increase before year-end remains high. That gap between expectation and likelihood is worth watching.
At the end of September, we learned that the Fed’s preferred measure of inflation, the Personal Consumption Expenditures (PCE), rose less than anticipated for August. This eased pressures on future interest rate hikes (there’s now a <40% chance of a hike at the October FOMC meeting) and reassured market participants that the Fed’s September hike was valid.
The opportunity in bonds
Treasury yields have reached their highest levels since 2007. Speaking with Reuters ahead of the Fed interest rate decision, our Chief Investment Officer, Edison Byzyka, CFA, was direct: “I think the Fed needs to absolutely raise rates tomorrow.”
Now with the hike a reality, Edison notes this is “one of the best buying opportunities in the bond market that we’ve had in probably a decade or so.”
We anticipate more flows in the bond market and believe that the trillions of dollars of sidelined money market assets can find a place in bonds, which will drive yields lower over the next 12 months.
The key takeaway: The entry point for long-term bonds is here. This is likely not the market top for yields, but there’s no reason to try to time the market. Focus on 12-month total returns over yield hunts.
Three things we’re watching through year-end
- Third-quarter earnings. Consumers continue to sustain corporate earnings, as the upcoming earnings season will likely show. We expect mixed signals from various industries, most of which should align to a neutral and non-directional earnings season. If the growth trend in earnings stays even mildly intact, the path toward higher interest rates gains more traction. Strong earnings would give the Fed room to keep moving.
- Commodity prices. Short of an end to the Iran conflict (and even for a little while after), commodity prices will keep pressure on inflation. Diesel is the clearest example — up more than 15% in a month. Diesel at these levels tends to show up in consumer prices on a four-to-eight-week lag.
- Midterm election seasonality. Historically, the months surrounding midterms are among the most volatile of the cycle. This is a period that calls for more active risk management, not less.
The bottom line
Rate increases aren’t the threat many investors assume.
With the proper opportunity-spotting perspective and awareness of what’s worth watching in the economy and markets, we can maintain hope and confidence for the rest of 2026.
If you’d like to discuss what all of this could mean for your plan and portfolio, reach out to an advisor.
Want a second opinion on your plan and portfolio?
Reach out to a member of our team to see how we can help you respond to recent market and economic shifts.
Headlines of the Month
Our Chief Investment Officer, Edison Byzyka, was recently recognized by ThinkAdvisor and featured in insightful, timely content from Reuters, Schwab Network, and FINTECH.TV, where he discussed the Fed interest rate hike, inflation, AI and tech stocks, and more. Here are the key headlines.
1. Edison Byzyka Named Chief Investment Officer of the Year Finalist
ThinkAdvisor Luminaries
At the end of August, Edison Byzyka was named a Chief Investment Officer of the Year finalist in the RIAs – Less Than $10 Billion AUM/AUA category of the ThinkAdivsor Luminaries.
With an industry-recognized Chief Investment Officer leading our Investment Policy Committee, clients can have confidence in the team that’s building and protecting their wealth.
2. “Government bond yields rise, oil gains again as stocks dip”
Edison Byzyka Featured in Reuters
Ahead of the Fed’s September meeting, Edison weighed in on why strong economic and earnings growth, combined with rising commodity prices, supported the case for another rate hike as Treasury yields reached levels not seen since 2007.
3. “Oil Above $100 and Yields at 5%: What Investors Should Watch”
Edison Byzyka Joins FINTECH.TV
Edison joined FINTECH.TV to discuss why he expects inflation to remain a challenge through year-end, how higher oil and diesel prices could add to inflationary pressure, and what keeps him positive about the labor market.
He also discussed the recent volatility in AI stocks and shared where Credent is finding opportunities beyond mega-cap tech as market breadth widens.
4. “Inflation, Rate Hikes, and Why AI Noise Doesn’t Matter”
Edison Byzyka on Schwab Network
Edison joined Schwab Network’s Trading 360 to discuss rising yields, inflation, the Fed, and what higher interest rates could mean for investors. With Treasury yields around 5%, Edison explained why he sees an attractive opportunity emerging in the bond market. He also shared why the recent volatility in AI and technology stocks hasn’t changed his broader outlook.
5. SpaceX 90-Day Post-IPO Review
In this video, Chief Investment Officer Edison Byzyka discusses SpaceX’s performance, volatility, and earnings expectations and addresses our stance on including the stock in our portfolios.
