Market Commentary

September 9, 2026

Market breadth narrowed in August as investors again retreated into a handful of megacap tech stocks amid policy uncertainty, a fractured AI trade, and seasonally thin market liquidity. Just seven stocks—Nvidia, Microsoft, Tesla, Micron, Palantir, Apple, and Salesforce—generated 80 percent of the S&P 500’s August gain. Meanwhile, the share of constituents outperforming the index fell to 37 percent in August, down from 61 percent in July and 66 percent in June. Despite the deterioration in breadth, we expect market participation to broaden again as the earnings growth advantage of the megacap leaders continues to narrow relative to the rest of the index and as investors gain greater clarity on policies.

A key policy uncertainty is the path of interest rates. The Treasury yield curve flattened in August as sticky inflation data and hawkish jawboning from Fed Chair Warsh raised expectations for a fed funds rate hike in September. Even so, we believe the Fed will remain on hold and that its next move will be a rate cut in 2027. We expect inflation to moderate as PCE data are revised lower, tariff effects fade, and energy prices ebb, with core PCE potentially falling below 3.0 percent by year-end and continuing toward the Fed’s 2.0 percent target thereafter.

Economic, policy, and geopolitical crosscurrents could once again heighten market volatility, making diversification especially important. Following the recent pullback in defense and industrial stocks, we see compelling opportunities and are adding to positions. We remain bullish on AI but have become more selective as growth slows in some subsegments. We also continue to favor software stocks despite their strong rebound, as valuations remain attractive.

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