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12 Month Market Outlook

Macroeconomic Outlook as of September 2026. Where we think the risks actually are, and how the portfolios are positioned against them.

Summary: Investment Positioning

With open geopolitical conflict, Fed re-entering a hiking cycle, sticky inflation, and AI-driven disruption at both the labor and enterprise level, markets may remain choppy into the midterm election cycle. Portfolio emphasis remains on quality balance sheets, active income, durable earnings, innovation leaders, and disciplined risk management across diversified exposures.

Fixed Income

Continue to favor shorter durations given policy uncertainty and inflation risk. Longer-dated bonds remain less attractive until inflation expectations decline and policy path becomes clearer. Real-return (inflation-adjusted) securities may be more interesting, but still challenged if inflation persists.

Equities

Quality companies with strong cash flow and pricing power remain key. Innovation/technology exposures still compelling given secular themes. But valuations are elevated and growth is slowing, so selectivity is critical. Energy outperformance has manifested itself.

Alternative/Strategic Assets

Given inflation and policy risks, diversifiers (real assets, alternatives) continue to merit consideration.

Digital Assets (e.g., Bitcoin)

If you still view them as strategic (as we do), the current volatility and policy backdrop may make them more interesting from a diversification/long-term adoption standpoint—but they require higher conviction and tolerate higher risk. As Global Liquidity (M2) continuously increases, our view is Bitcoin will appreciate.

Near-Term Key Risk Dynamics

Energy supply disruption risk — The effective closure of the Strait of Hormuz, a critical chokepoint for ~20% of global seaborne oil flows, has sharply reduced tanker transits, driven up war-risk insurance costs, and pushed oil prices higher.
Inflation and growth impacts — Elevated oil and gas prices create renewed inflationary pressure and could depress growth in energy-importing regions if disruptions persist.
Trade and shipping volatility — Major shipping lines have rerouted vessels and suspended transits through the Gulf; insurance premiums on maritime routes have surged, tightening “effective supply” even without well outages.
Regional contagion risk — Iranian retaliation has extended to missiles and drones targeting U.S., Israeli, and allied positions across the Gulf, with proxy groups (e.g., Hezbollah) entering the conflict, adding to spillover risk.
Market reactions — Equities in some regions have weakened on heightened risk sentiment, while safe havens like gold have strengthened. Broader macro contagion remains a risk if conflict spreads or impacts global supply chains.

What we’re watching

Six risk dynamics

Inflation Dynamics

July inflation readings remained above the Federal Reserve's 2% target: Core PCE was 3.3% year over year, Core CPI was 2.5%, Headline CPI was 3.4%, and Headline PCE was 3.7%. Energy and other input costs may continue to influence inflation readings, while tariff-related pressures and other factors remain uncertain. The risk is a prolonged inflation cycle rather than a short-term spike.

July Core PCE was 3.3% year over year, while Headline PCE was 3.7%.
July Core CPI was 2.5% year over year, while Headline CPI was 3.4%.
Goods inflation easing, but uncertain impact from conflict as energy input prices skyrocket in at least the near-term.
PPI is continuing to print hot and is likely to pass through to the consumer in upcoming months.

Labor Market & Economic Growth

The labor market had been cooling without collapsing, but job growth recently has been substantially stronger than expected. Risks of sizeable AI-related layoffs and early-retirement packages persist but aren't posing as big of a threat yet as originally expected. Moderating wage growth is an important metric to monitor as weaker consumption combined with higher rates could present a material headwind to real economic growth.

Job creation slowed significantly, with several months of weak private-sector hiring, but over the past few months has materially improved.
July unemployment was 4.1%, down 0.1 percentage point for the second consecutive month.
New college graduates and over-50 white collar workers have been particularly affected in the negative.
Expect “backdrop” for labor to go sour before the actual unemployment number as early retirement packages and such are taken, which could directly flow through to spending and negatively impact economic growth.
Corporate hiring freezes are becoming more common, and wage growth has moderated.
Meaningful downside risks present to economic growth as shown by recent downward revisions and lackluster GDP numbers.

Federal Reserve Policy, Leadership Transition & Rates

The Federal Reserve raised its policy rate by 25 basis points at its September 16 meeting. The September dot plot indicated at least one additional rate increase in 2026. The policy path remains uncertain as the Fed weighs inflation, labor-market conditions, growth, and geopolitical developments.

The Federal Reserve raised its policy rate by 25 basis points at the September 16, 2026 FOMC meeting.
The September dot plot suggested at least one additional rate increase in 2026.
Data uncertainty remains elevated: inflation, labor-market conditions, and energy-related costs may influence future policy decisions.
Key risk: Restrictive policy could weigh on growth, while easing too quickly with inflation still elevated could add to price pressures. The path remains challenging to navigate.
The September decision and projections underscore the Fed's continued focus on inflation alongside its employment mandate.

Technology Leadership & AI Disruption

Innovation remains a structural driver (AI, automation, digital assets), but accelerating AI adoption is creating disruption risk—particularly in software, where pricing pressure, margin compression, and competitive displacement are increasing.

AI remains early in its adoption curve, driving capex cycles and productivity investments.
Productivity appears to be increasing rapidly in specific sectors, especially coding-related jobs.
Monitoring the development of AI agents in tandem with unemployment numbers will be paramount to positioning in the coming years.
The market is broadening beyond the “Magnificent 7,” with mid-cap innovators gaining traction.
In a slower growth environment, winners will be defined not just by innovation but by execution, margin discipline, and scalability.
Innovation leadership remains essential — but with higher scrutiny on earnings quality.

Geopolitical Risk — Middle East War

Conflict between Iran and the United States/Allies has elevated geopolitical risk premia and increased energy market sensitivity, particularly around the Strait of Hormuz. Higher oil prices risk reintroducing inflation pressure, complicating Fed policy and adding near-term volatility across equities, credit, and commodities.

Iran: Open conflict threatens the most-important energy corridor in the world: The Strait of Hormuz. While the administration has taken an aggressive, hardline stance publicly—issuing and executing strong military threats—it is increasingly clear that a diplomatic resolution remains the best economic end state.
Venezuela: Political instability and uncertainty around sanctions, oil production, and election outcomes create episodic energy-market and emerging-market risk. Oil shipments to the US have increased, a net positive for US energy independence in the Americas sphere of influence.
Greenland: Rising geopolitical importance due to strategic location, Arctic shipping routes, and critical mineral resources adds long-term geopolitical and defense-related uncertainty.
Portfolio implication: A higher risk premium is justified, and portfolios should reflect a balance of offense (innovation) and defense (quality, shorter duration, diversifiers).

Government Policy: Tariffs, Tax, Deficits & Liquidity

Fiscal policy continues to favor tax extensions and growth support. Increased tax refunds this spring provided a modest liquidity tailwind to consumers and markets. However, large deficits and ongoing trade frictions contribute to structural uncertainty.

Tariffs remain an active geopolitical tool. While escalation is not the base case, tariff-related volatility can flare quickly. The Supreme Court's decision has effectively capped the “blanket” tariff rate at 15%, but specific sectors can still be targeted by the executive branch.
Tax policy remains in gridlock: extensions of existing tax cuts are still expected, but broader tax reform is unlikely in the near term.
Fiscal deficits remain historically large, keeping upward pressure on inflation expectations and limiting the government's ability to deploy stimulative fiscal policy without cost.
K-Shaped economy continues to develop, potential for unrest should unemployment suddenly spike alongside an economic downturn.
Policy implication: More episodic volatility and a higher structural inflation floor.

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This outlook is general commentary, not personalized investment advice, and it reflects conditions as of September 2026. All investments involve risk, including possible loss of principal. Past performance does not guarantee future results.