October 2026 – A Review of September Market and Economic Activity

Executive Summary

• The bond market, not the stock market, set the tone in September. The US 10-year Treasury yield closed the month at its highest level since 2002, surpassing its 2007 peak, as higher policy rates, elevated energy prices, heavy government borrowing and AI-related capital demand converged.
• The Federal Reserve raised rates for the first time since 2023. A unanimous 25 basis point increase, with most officials signalling another to come, confirmed that the hawkish turn flagged at Jackson Hole was not rhetorical.
• Canada’s trade dispute with the US moved from negotiation to escalation. Canadian counter-tariffs took effect on 8 September and the US responded with import bans. The Bank of Canada held rates steady while warning that upside risks to inflation have increased.
• Energy volatility intensified. Renewed US–Iran hostilities pushed Brent crude back above $100 a barrel for the first time since May, before diplomatic overtures and recovering Saudi exports provided partial relief.
• AI demand remains formidable, but its financing is now a macroeconomic variable. Micron’s results showed customer commitments rising sharply, while the scale of the infrastructure build-out is increasingly competing with governments for the same pool of capital.

September tested the assumption that equity markets can look through rising borrowing costs indefinitely. For the month, US equities, as measured by the S&P 500 were down -0.4% in USD terms and up +2.1% when expressed in CAD terms. The S&P/TSX Composite fell approximately -2.6% to its lowest close since late July. The more important movement occurred beneath the surface. The cost of money rose decisively across the developed world, and with it the hurdle that every other investment must clear.

Interest Rates: The Cost of Money Resets

On 16 September, the Federal Open Market Committee voted 12–0 to raise the federal funds rate by 25 basis points to a target range of 3.75% to 4.00%, its first increase in more than three years. The Committee’s statement was notably brief: inflation remains elevated, and the Committee will deliver price stability. Updated projections showed 16 of 18 participants expecting at least one further increase this year.

The bond market moved further and faster than the policy rate. The 10-year Treasury yield, which ended August near 4.7%, closed at 5.30% on 30 September, eclipsing both its intraday and closing highs from 2007. The 30-year yield reached its highest level since 2004. Notably, investors are demanding more compensation to lend for long periods, not simply pricing the next Fed decision.¹

Four forces are pushing in the same direction: tighter monetary policy, an energy shock that complicates the inflation outlook, persistent government deficits that require continuous Treasury issuance, and an AI investment cycle absorbing extraordinary amounts of capital. Weak demand at several Treasury auctions during the month reinforced the point.

We do not view the rise in yields as cause for alarm given that robust growth and inflationary pressures, which may ease at some point, are the primary drivers. However, we recognize that higher yields rarely break anything on the day they arrive; the strain emerges over the following year as borrowers refinance at the new rate. For our clients, the more constructive observation is that high-quality fixed income now offers income levels unavailable for most of the past two decades, and that the case for both traditional fixed income and diversified, non-traditional income-generating strategies has strengthened for long term investors seeking a real total return.

Canada: From Negotiation to Escalation

The Canada–US trade relationship deteriorated further in September. Following the collapse of negotiations in late August and the imposition of 50% US tariffs on a broad range of Canadian goods, Canada’s dollar-for-dollar counter-tariffs of 15%, 25% and 50% took effect on 8 September, covering approximately $27.6 billion of US imports including steel, dairy, appliances, agricultural equipment and electronics. Washington responded with an import ban on nearly US$1 billion of Canadian alcohol, motorcycles and dairy products, effective 29 September. Trade talks remain suspended, with the US Trade Representative indicating no urgency to resume them.²

The Bank of Canada held its policy rate at 2.25% on 2 September, its seventh consecutive hold. The Governing Council described a broadening recovery, with second-quarter GDP up 3.3% and unemployment edging down to 6.4% in July, but cautioned that upside risks to inflation have increased. Headline CPI has hovered around 3%, driven largely by gasoline; excluding gasoline, inflation was 2.2% and core measures remain close to the 2% target. Subsequent data showed GDP flat in July with a preliminary 0.2% gain in August, suggesting the economy is absorbing the trade shock better than feared, at least for now.³

Canadian equities felt the global rate move acutely. The TSX is heavily weighted toward financials. energy and materials, and gold miners in particular gave back ground as real yields rose. The next Bank of Canada decision on 28 October, accompanied by a full Monetary Policy Report, will offer the clearest view yet of how the Bank weighs a resilient economy against tariff-driven price pressure.

Energy: The Premium Returns

August’s relative calm did not last. US–Iran fighting escalated sharply in early September, with the US military destroying several Iranian tankers and Iran-aligned Houthi forces striking Saudi energy facilities. Brent crude settled at $107.63 on 10 September.

Relief came from two directions. Saudi Arabia redirected exports through the strait, lifting Hormuz shipments from roughly 700,000 barrels a day in August to around 2.9 million by mid-September, while Iranian officials signalled conditional willingness to reopen it. Brent briefly eased toward $100 before rebounding after Washington rejected Tehran’s proposal.

The link between energy and interest rates has become unusually direct. As oil rises, so do inflation expectations and bond yields—the key channel through which a distant conflict reaches a Canadian portfolio. We continue to treat energy volatility as a recurring condition rather than a forecastable event, managing it through diversification across inflation-protecting assets classes, rather than directional positioning.

Artificial Intelligence: Demand Meets the Cost of Capital

Micron Technology’s 30 September results reinforced the strength of AI demand. Quarterly revenue guidance exceeded estimates, while long-term customer commitments rose to $32 billion from $22 billion in June, largely through cash deposits. Management expects memory supply to be tighter in 2027 and 2028, calling it the principal constraint on AI capacity.⁴

The build-out is now large enough to affect the broader economy. The seven largest AI infrastructure builders spent approximately $657 billion over their last four reported quarters. Four of these companies finance this from operating cash flow, while the others require debt to facilitate capital expenditure.

This is where September’s themes intersect. AI investment supports growth and keeps rates higher, while higher rates raise its financing cost. Cash-rich companies are well positioned; those reliant on debt are more exposed. We retain broad equity exposure across industries and geographies, capturing both AI enablers and adopters without depending on any single group’s ability to finance its ambitions.

Summary and Outlook

September marked a regime change in the price of money. Inflation remains above target in most major economies, energy remains a source of supply-driven price pressure, and governments and corporations alike are competing for capital at a scale not seen in a generation.

Higher yields are not uniformly negative. They raise the income available from high-quality fixed income, restore the role of bonds as a genuine source of return in a multi-asset strategy portfolio, and impose a valuation discipline that tends to reward quality. They also expose leverage, whether in real estate, private equity, highly indebted companies or speculative positions financed with borrowed money. Our all-weather approach is built for resilience in this kind of transition: return streams drawn from high-quality fixed income, private credit with floating rate exposure and short-dated private mortgages, ability to dampen potential volatility through multi-strategy absolute return strategies and inflation protection delivered by broad allocations to private equity, venture capital, real assets and public equities.

Where higher yields create opportunity, we intend to capture it with discipline. As always, we welcome the opportunity to discuss how these developments relate to your own circumstances and long-term objectives.

¹ Source: CNBC; US Treasury; Bureau of Economic Analysis, September 2026

² Source: Blake, Cassels & Graydon LLP; Dentons; BBC, September 2026

³ Source: Bank of Canada, 2 September 2026; Statistics Canada, 29 September 2026

⁴ Source: Micron Technology fiscal fourth quarter 2026 results, 30 September 2026; Reuters

About Our Investment Team Contributors

Meet the investment professionals behind this edition, bringing deep experience across portfolio management, research and client strategy.

Trevor Hunt, CIM® – Chief Investment Officer and Head of Strategic Growth

Charlie Scharfe, CFA, B.A., M.Sc – Chief Investment Officer, Investment Strategy

Vianne Xu, CFA, CFP, CIM, MBA – Head of Research

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