The wisdom of Warren Buffett was on display again last month. It was Mr. Buffett who noted that when interest rates go up, the values of all financial assets typically go down. Well, interest rates went up dramatically in September, basically doubling their slow rise of the previous eight months in just 30 days. As expected, asset values tumbled, but with one notable exception.
It’s likely September’s rate jump was fueled mainly by investors realizing the economy’s inflation problem is probably more entrenched than they had hoped. With the Strait of Hormuz still mostly closed and negotiations with Iran essentially gridlocked, it seems investors have finally relented and priced long-term inflation into the markets.
That, coupled with the Federal Reserve raising short-term interest rates by a quarter-percent last month (as was expected), sent long-term rates soaring. The interest rate on the 10-year government bond shot up from 4.79% on September 1 to 5.29% on September 30.1 Again, investors had already been facing a steady interest rate headwind for most of the year, but the gust that blew in September pretty much doubled the wind speed.
Shades of 1999?
As mentioned, there was one glaring exception to the Warren Buffett rule last month, and you can probably guess what it was. That’s right: Tech stocks were virtually unfazed by the rate jump, even as most other stocks sold off by an average of 6–8% across the market. As a result, the tech-heavy Nasdaq rose by over 3%, and the S&P 500 (which includes all of the Magnificent 7 tech companies) broke even while the more diverse Dow Jones Industrial Average fell by 4.1%.2
So, interest rates went up and, thus, the values of most asset classes went down, but tech stocks kept soaring. Does that sound familiar? It should. In 1999, the situation was similar due to the infamous dot-com tech bubble. Now, I’m not ready to say yet that we’re headed for another bursting tech bubble and major market crash, but it does make one question whether some of these speculative A.I. tech stocks — and the sector overall — might be wildly overvalued.
Your Portfolios
Naturally, the bonds and bond-like instruments in our fixed-income portfolios were, like most assets, negatively impacted by last month’s rate jump, as you’ll see in your latest statement. Our median fixed-income portfolio went down by about 4% in September. Your own portfolio might be down slightly more or slightly less, depending on your individual holdings.
A swing that big, that fast in either direction is unusual, as you know. At the end of August, our median portfolio of bonds and bond-like instruments was still up about 1% for the year despite interest rates having risen by about six-tenths of a percent over the first eight months. Thanks to September’s dramatic spike, that same median portfolio is now down about 3% year-to-date.
As for our stock dividend portfolios, all but one of those are still beating their benchmark index, the S&P 500, by about 1% year-to-date. The S&P 500 is up 12%. That means if your own holdings with us are diversified between fixed income and equities, your year-to-date total return may still be in the black.
The Good News
The bottom line is that the headwind we were already facing kicked up a gale-force gust last month, but hopefully it was only a gust. If so, and if interest rates re-stabilize a bit, we could see the markets give back some of what they just took in fairly short order.
I say this in part because most of September’s rate jump occurred in the final week. That could mean the markets overreacted but didn’t have time to bounce back any before the month ended. I also say it because the Fed is now actively taking steps to address inflation and the economy is still relatively strong despite its challenges. Together, these factors suggest there’s a good chance we could see at least a partial rebound.
That’s good news, but the even better news, as always, is that when you’re an income-first, growth-second investor, it means that any fluctuations up or down in your asset values on paper are largely irrelevant because the income you’re receiving is unaffected. And the even better news on top of that is that if you’re reinvesting some of that income now, it means you’re buying more shares at lower prices, thereby increasing your future income and growth potential.
As always, if you have any questions or concerns, or want to talk with us about making some changes to your strategy, reach out to our office at any time.
Meanwhile, I hope you have a wonderful October. https://www.cnbc.com/quotes/US10Y https://www.nasdaq.com/articles/september-2026-review-and-outlook
Sources:
1https://www.cnbc.com/quotes/US10Y
2 https://www.nasdaq.com/articles/september-2026-review-and-outlook
October Recipe: Kansas City BBQ Nachos
Ingredients:
• 6 cups triangle-shaped corn tortilla chips (8 oz)
• 2 cups shredded Cheddar cheese (8 oz)
• 1 can (16 oz) spicy chili beans, undrained
• 1 container (18 oz) refrigerated seasoned shredded pork in original BBQ sauce
• 1/4 cup Old El Paso™ jalapeño slices from 1 jar (12 oz) Old El Paso™ Hot Jalapeño Slices, drained, chopped
• 1 cup tangy vinaigrette-style deli coleslaw, drained
• 2 medium green onions, sliced (2 tablespoons)
Directions:
- Heat oven to 400°F. Line a 12-inch pizza pan or a 15x10x1-inch pan with foil; spray with cooking spray. Spread half of the chips evenly on the pan. Sprinkle 1 cup of the cheese over the chips.
- In a medium bowl, mix chili beans, pork, and jalapeños. Drop half of the mixture by small spoonfuls over the chips. Repeat layers with chips, cheese, and pork mixture.
- Bake 12–15 minutes or until cheese is melted. Top with coleslaw and green onions. Serve immediately.
The Kansas City BBQ Nachos recipe: Kansas City BBQ Nachos Recipe - BettyCrocker.com