Market Briefing Monthly | September 2026 — How Much of the Interest Rate Hike Has the Market Absorbed?

For Public Release

1. Market Tone This Month

In September, interest rates, equities, and credit markets did not move at the same pace. While the U.S. 10-year yield rose 54 bps from 4.75% at the end of August to 5.29% at the end of September, the S&P 500 fell only 0.45%, and the Nasdaq rose 1.86%. Meanwhile, the equal-weighted S&P 500 index fell about 5%, and the spread on U.S. high-yield bonds widened from 263 bps to 312 bps. Rather than the entire market absorbing higher interest rates, it was a month where revaluation began in average stocks and the credit market, while a handful of large-cap growth stocks supported the indices.

2. Fixed-Point Observation

• Equities — The S&P 500 fell 0.45% from 7,686.14 on August 31 to 7,651.54 on September 30. While the Nasdaq rose 1.86%, the Dow fell 4.29% and the Russell 2000 fell 5.40%. The equal-weighted S&P 500 was down about 5%, and the financial sector ETF, XLF, was down about 7%. Since the standard S&P 500 is heavily influenced by the price movements of large companies, the difference between the two indices indicates a lack of market breadth.

• Interest Rates & Volatility — According to the Fed’s H.15, the 2-year yield rose from 4.34% to 4.88%, the 10-year from 4.75% to 5.29%, and the 30-year from 5.25% to 5.64%. The 10-year real yield also rose 49 bps to 2.93%, meaning the rise in expected inflation, viewed as a simple difference, was only about 5 bps. The VIX rose from 14.92 to 16.34 but remained at a low level. Meanwhile, the MOVE index rose from approximately 75 to 110, with bond volatility rising before equity volatility.

• Precious Metals — Physical gold fell 6.6% for the month. Silver, platinum, and palladium also declined over the month. Even as supply concerns intensified, the rise in real yields and the dollar acted as a headwind for non-interest-bearing assets.

• Crude Oil — Against the backdrop of supply concerns in the Middle East, Brent rose about 14% and WTI about 5% for the month. Brent futures at the end of September were $103.53 per barrel. Supply constraints did not ease, leaving a path back to prices and monetary policy.

• Currency & Credit — The dollar index rose about 2% for the month. On the other hand, the dollar-yen moved toward a stronger yen, from 160.12 to 157.40, which cannot be explained solely by a broad dollar rally. The spread on U.S. high-yield bonds widened by 49 bps. While it has not reached the formal warning level of 350 bps, caution regarding risk has intensified in the credit market as well.

3. What Has Not Collapsed

First, the resilience of major indices was maintained. However, this does not reflect the strength of the market as a whole. In contrast to the Nasdaq’s rise and the S&P 500’s slight decline, average stocks, small-cap stocks, and financial stocks were clearly weak. It is necessary to distinguish between the fact that the indices have not collapsed and the health of the internal equity market.

Second, employment was undetermined as of the end of September. The August employment report released on September 4 showed an increase of 162,000 jobs and an unemployment rate of 4.1% based on estimates at the time. Initial jobless claims through September 19 were 197,000, and no surge in layoffs was confirmed. However, low jobless claims do not guarantee the momentum of hiring.

Third, credit weakened. The HY spread widened by 49 bps from its low at the beginning of the month to 312 bps at the end of the month. This is not a level indicating a crisis, and the cause or phase cannot be determined by 350 bps alone. Nevertheless, the view from the beginning of the month that rising interest rates were not reaching the credit market needed to be revised.

4. Context for This Month

The first half of the month was dominated by moves to price in additional rate hikes, driven by strong growth and rising oil prices. On September 16, the Fed raised the policy rate by 25 bps to 3.75–4.00%. At the same time, it raised its 2026 growth forecast to 2.3% and lowered the unemployment rate to 4.1%, while raising PCE inflation to 3.7% and the year-end policy rate median to 4.1%. This was a rate hike to curb prices while growth continued, rather than a response to economic deterioration.

The narrative changed in the second half of the month. Long-term rates and real rates rose, bond volatility increased, average stocks and financial stocks fell, and HY spreads widened. The weakness in financial stocks cannot be explained solely by the one-way argument that rising interest rates improve margins. It is necessary to separate deposit funding costs, valuations of held bonds, loan loss provisions, and loan demand, and verify them through earnings reports.

Also, an increase in the term premium cannot be determined solely from the yield curve. Over the month, the 10-year yield rose 54 bps, while the 10-year real yield rose 49 bps. At the very least, this cannot be explained by expected inflation alone. However, a separate model estimate is required to accurately separate the contributions of policy rate expectations and the term premium.

5. Conditions for Changing Views

Even after September, I maintain the hypothesis that growth driven by technological innovation and constraints on energy, capital, and interest rates will intensify simultaneously. On the other hand, I am revising the view that “price revaluation due to rising interest rates has not yet begun.” Revaluation has begun to appear not in a sharp drop in the overall index, but in market breadth, financial stocks, bond volatility, and credit spreads.

From here, I would shift my view further to bearish if the sustained widening of HY spreads exceeds the existing 350 bps warning line, and if this coincides with a rise in the VIX or MOVE and a deterioration in employment. Conversely, if long-term interest rates stabilize, credit spreads narrow, and the equal-weighted S&P 500 and financial stocks recover, it can be judged that the changes in September were within the scope of a correction. Do not decide on a phase shift based on a single level alone.

6. Observation points for October

• Prices and monetary policy — Will rising crude oil prices spill over into actual prices and inflation expectations? We will verify not only the timing of the next rate hike but also the composition of real interest rates and long-term interest rates.

• Corporate earnings and financing — We will examine bank deposit costs, credit costs, and margins separately from the financing and cash flow of AI investment companies. We will confirm whether the interest rate hike has reached profits and investment plans.

• Energy supply — Rather than announcements of export restrictions or reserve releases, we will look at whether actual export volumes, inventories, and refined product prices improve. We will track the path through which supply anxiety leads to price constraints.

The conclusion at the end of September is that the indices have absorbed the high interest rates, but the internal market and credit have not fully absorbed them. “Not broken yet” is not the same as “will be fine in the future.”

Postscript at the time of publication

In the September employment report released on October 2, the number of employed persons increased by 29,000, the unemployment rate was 4.2%, and average hourly earnings were up 3.0% year-on-year. July and August were also revised downward by a total of 60,000. While the weakness in hiring has become clear, a sharp rise in the unemployment rate has not been confirmed. Initial jobless claims released on October 8 were 197,000, and continuing claims were 1.716 million, indicating that employment is in a state of “low hiring, low layoffs.” Additionally, the HY spread widened to 324 bps on October 1 before narrowing to 310 bps on the 2nd. This is information that was not known at the end of September; it will not be retroactively mixed into the September assessment but will be carried over as an observation for October.