Portfolio Building

There was very little macroeconomic news last week, but there was certainly no shortage of action in the markets. We saw an extraordinarily sharp rotation out of growth and into value, with both the Russell Value Index and the S&P Value Index reaching all-time highs even as the Nasdaq suffered one of its largest recent selloffs. That is a dramatic divergence, but historically it is not unprecedented.

US midterm elections take place on Tuesday, November 3. Currently, the Republican party is in control of the House and the Senate. This vote will essentially be a referendum on the Republican party’s body of work. It’s likely the composition of either the House or the Senate will change.

Higher yields do not automatically make longer-duration bonds attractive, as persistent inflation, resilient growth, and heavy debt issuance could maintain upward pressure on yields in the near term.

Rick Polsinello, Christian Galipeau Discuss high-conviction insights that go beyond media headlines.

The next two weeks bring an unusually crowded lineup of potential market-moving catalysts, including a Federal Reserve (Fed) policy meeting, the busiest stretch of third-quarter 2026 earnings season, the Treasury’s Quarterly Refunding Announcement and the midterm elections.

We have been arguing that the reset higher in yields has restored the dual role of bonds in multi-asset portfolios: providing attractive income while once again offering the potential for meaningful risk mitigation. This month’s tech market turbulence has provided a clear example: As equities came under pressure, U.S. Treasury yields fell amid a flight to safety, allowing duration to behave like a diversifier again.

Our Director and Head of Canadian Investment Strategy BeiChen Lin sees two main forces behind this week’s more cautious market tone: higher energy prices and renewed questions around artificial intelligence investment.

With several provisions of the One Big Beautiful Bill Act (OBBBA) taking effect in 2026, year-end planning may present new opportunities and considerations for taxpayers. It’s important to assess personal finances before the end of the year to determine if action is needed.

Manufacturing production began to recover in early 2026 after nearly three years in recession. Yet manufacturing employment has remained largely unchanged. In other words, a year and a half after tariffs were imposed with the goal of boosting manufacturing jobs, that objective remains elusive.

With the U.S. midterm elections mere weeks away, it can be easy to get swept up in the headlines and questions about what different outcomes might mean for markets.

Emerging markets continued to deliver strong year-to-date returns in 2026, although the third quarter served as a reminder that the path higher is rarely linear. After a powerful first-half rally led by artificial intelligence (AI), semiconductors and other growth-oriented sectors, markets experienced a broad correction in July before stabilizing through the remainder of the quarter.

The number one question we tend to receive is: Where are long-term interest rates headed from here? Right behind it is: How do I invest in the bond market, not only for right now but also for the future? In our opinion, investors should be prepared for this elevated “normal” rate setting for the foreseeable future. We wanted to address both questions by examining how to prepare a bond portfolio for a 5% world.

The Magnificent Seven have dominated the technology trade, but investor attention is now shifting toward the MANGOS — a group of companies that place greater emphasis on artificial intelligence (AI) rather than traditional megacap technology.

Markets look calm on the surface, but AI-driven shifts in capital allocation, earnings quality, and funding needs are reshaping risks and opportunities beneath the index level.

Higher bond yields may offer retirees more income potential, but a diversified approach that balances income, risk, and spending needs remains important.

The Federal Open Market Committee (FOMC), the policy-setting group within the U.S. Federal Reserve, meets on 27–28 October to discuss the economic outlook and appropriate monetary policy. We expect the FOMC to hold the policy rate at 3.75%–4.0% while keeping a clear tightening bias.

After years when yield was scarce and investors were pushed further out on the risk spectrum, income is investable again. High-quality bonds can once more provide meaningful cash flow, portfolio stability and a credible path to total return without requiring an aggressive call on interest rates or credit.

GMO has posted a new 7-Year asset class forecast for 3Q 2026.

US stocks have continued to climb, but the gains have been far from uniform. In most sectors, a majority of companies have trailed the index. For investors, we believe the divide between a resilient index and uneven stock-level outcomes makes selectivity and fundamental research more important.

Last week saw a further deterioration in the inflation outlook, while the Federal Reserve (Fed) appears increasingly reluctant to tighten again immediately. The September headline Consumer Price Index (CPI) rose 0.6% month/month (m/m) and 3.7% year/year (y/y), while core inflation increased 0.3% m/m and accelerated to 2.6% y/y from 2.4%.

As investors look beyond U.S. borders for fixed income diversification, Schwab Asset Management is entering the international bond ETF race with the Schwab International Bond ETF (SCIN). Expected to begin trading on the NYSE on October 21, 2026, SCIN pairs international investment-grade bond exposure with an ultra-low 0.06% net expense ratio.

A week filled with hotter inflation readings brought growing concerns about the sustainability of the pace of AI spending. Despite rising inflation, bond yields ended the week lower. While the S&P 500 Index of large-cap stocks fell 1.95 percent for the week, the decline was largely driven by its heavy weighting to technology stocks, which faltered by 6.37 percent.

Earnings now have become the central market focus this week. Bank results have been somewhat mixed, and the market will need confirmation that profits outside the largest technology companies are strengthening. I still do not believe the overall equity market is excessively valued, but investors should expect continued volatility between growth and value as expectations for AI spending shift.

The AI agent catalyst. Meta's September launch of Muse, a personal artificial intelligence (AI) agent designed to act on a user's behalf across digital workflows, crystallized the market's latest disruption narrative.

Fed rate hikes could climb further than markets expect, according to T. Rowe Price Capital Markets Strategist Tim Murray.

The US Treasury market is entering a new era. Financing government debt is becoming less about capital availability and more about the yield required to attract it.

Narratives are almost always wrong: clever stories that explain the past and say nothing about the future. One may be right. AI may become the dominant technology of the century and render much of the present economy obsolete.

This year, the software sector has been one of the worst-performing pockets of the leveraged loan market amid fears that AI would severely disrupt existing business models. The sector’s underperformance has also weighed on the leveraged loan asset class as a whole, given its more than 10% weight in the overall Morningstar LSTA US Leveraged Loan Index.

Chris Galipeau and Taylor Topousis discuss high-conviction insights that go beyond media headlines.

The Nasdaq-VettaFi Asset Allocation Summit this week included insights from leaders at key asset managers discussing the major decisions that advisors are facing. With costs rising and many investors at or near retirement, fixed income and income ETFs, specifically, took up a big part of the conversation. Leaders from BlackRock, WisdomTree, and Fidelity Investments all shared their views on both the fixed income outlook and the use cases for fixed income ETFs right now.

Third-quarter earnings season kicked off this week and expectations are high. Despite the headwinds of higher oil prices and interest rates, economic growth has remained resilient, while the AI investment boom continues to gain momentum. As a result, the S&P 500 is expected to deliver 29% year-over-year earnings growth, marking a third consecutive quarter of 25%+ gains.

Artificial intelligence (AI) and the Federal Reserve rate hike have dominated headlines recently—and investors might be wondering how these things will affect them.

We believe the combination of AI, robotics, space technology, and quantum computing will be primary drivers of future economic growth.

Discover how strong corporate earnings, AI capex cycles, and 5%–10% fixed income yields outweigh midterm election and Fed rate uncertainties.

The third quarter of 2026 emphasized an increasingly divided macro regime for financial advisors and institutional allocators alike. On one end, broad market hopefulness drove steady capital deployment into broad-market beta, while on the other end, raised rate volatility and geopolitical tension forced strategic pivots across fixed income, real assets, and systematic strategies, according to BlackRock’s Q3 earnings call, released October 14.

Over the last decade, a series of policy decisions in DC support the reindustrialization of the United States. Key policy movers include investments in infrastructure, tax policy that allows significant tax benefits for corporate capital expenditures (capex) and domestic research and development, the CHIPS & Science Act and tariff policies, especially the sector-specific 232 tariffs.

In this commentary, we look at three themes shaping our thinking: a shift in who is leading the market, the return of income as a meaningful source of return, and an economy that, in our view, is growing steadily rather than heading toward either extreme.

Corporate bond yields are high, but spreads are low. Low spreads are supported by strong corporate fundamentals, and high yields might help offset potential price declines.

As we enter the final quarter of 2026, the investment backdrop remains constructive but increasingly differentiated. Economic growth and corporate earnings have remained resilient, while continued investment in artificial intelligence (AI) and other productivity-enhancing technologies has supported capital spending and market sentiment.

We agree that the economy has appeared remarkably resilient at the aggregate level, and that modest further rate increases may not put overall growth at risk. But the more important question for portfolios is not the level of inflation; it is its sensitivity to rates.

If markets are good at one thing, it's reminding investors that stock prices don't simply go up, uninterrupted, forever. I have updated this report several times since it was initially published in 2008, and given recent market volatility, it made sense to do so again.

In the AI-led markets of recent years, companies with distant profit potential have been favored. But higher interest rates could change the equation and create a new advantage for value stocks, whose businesses tend to have more visible cash flows in the shorter term.

An income projection can provide an important starting point for year-end tax planning. Explore key 2026 tax brackets and income thresholds that may help inform planning decisions before year-end.

As we round the three-quarter pole and head into the final stretch of 2026, the prevailing investment narrative has, of course, been AI, along with its pros and cons. Since March, when the Iran conflict began, there has been a secondary drumbeat that continues to get louder and louder: the narrative surrounding bond prices, interest rates, inflation, and the economy.

In light of accelerating global fragmentation and geopolitical conflict, many governments and businesses are investing in resilience. That imperative has coincided with the emergence of AI, a technology that can expand the frontier of what is possible. As a result, technology security is becoming a pillar of national economic security strategy.

Q3 was a period of transition in the bond market thanks to Federal Reserve changes, a surge of AI-driven debt issuance, and rising interest rates.

BlackRock, WisdomTree, and Fidelity Investments had representation at the recent Nasdaq VettaFi Asset Allocation summit.

Inflation, geopolitical fragmentation and concentrated, AI-driven markets have put a premium on investors’ ability to navigate directional moves across asset classes. We think systematic trend-following strategies can help chart a course. But how they’re designed matters.

While redemption pressure in nonlisted BDCs (funds that invest in small and midsize private U.S. businesses) has eased from its peak, it remains materially above the industry standard 5% quarterly redemption threshold. As a result, capital continues to leave the asset class, forcing managers to look to preserve liquidity, moderate deployment, and, at the margin, tighten financing conditions.

In a week marked by continued concerns about rising interest rates, the bond market found some relief after two large Treasury auctions of 10- and 30-year securities were well received by investors. The week’s most significant development came Thursday, when questions emerged about OpenAI’s revenue. Reports suggested revenue was running at a $50 billion annual pace, well below the $70 billion investors had expected.

Global income strategies offer a compelling value proposition for investors: a steady stream of income generated from dividend-paying equities, government bonds and structured instruments like equity-linked notes (ELNs) from around the world.

We see a reason for advisors to evaluate the support surrounding the strategy. Questions about onboarding existing holdings, applying restrictions, monitoring tax budgets and managing ongoing trading belong with the implementation provider. Understanding exposures and portfolio fit is where our consultation team can help.

While the current bull market celebrates its fourth birthday next week, the average bull market lasts about five and a half years. Yet there has been nothing average about this one.

Bank lending rarely commands the attention that payrolls, inflation or consumer spending do. But it helps determine how much momentum the economy can sustain. The Role of C&I Loans: Commercial and industrial (C&I) loans, the workhorse of corporate finance, pay for everything from working capital to machinery and software.

The outlook for government policy, bond markets, and monetary policy appears less settled than it has been for much of the post-COVID period. The debate about public debt, the functioning of the Treasury market, inflation persistence, and the future path of interest rates has intensified. Global bond yields have been soaring.

Criticism of the AI and data center investment boom often centers on two distinct employment concerns. The first is that broader AI adoption could displace workers across industries as firms increasingly automate certain tasks. The second is that while data center construction generates jobs, these facilities require relatively few permanent employees once operational.

With the 10-year Treasury yield at its highest level since 2002, buying bonds at 5% is the first real alternative that stock investors have had in nearly two decades.

Our Senior Portfolio Manager and Head of Global Sustainable Investing, Kris Nelson, sees markets balancing several competing forces this week, from renewed oil-price volatility to softer labor data and increasingly demanding expectations around AI earnings.

Taylor Topousis and Christian Galipeau discuss high-conviction insights that go beyond media headlines.

As Election Day approaches, investors may be asking what the upcoming midterm elections could mean for policy and markets. While there may be potential shifts in control, the policy impact is likely to be limited. Meanwhile, political rhetoric tends to heat up as elections draw closer, which could lead to an uptick in market volatility.