September 2026 Market Outlook: Is the S&P 500 Building Wave 3 Despite Higher Interest Rates?
September 2026 was a month filled with conflicting signals for investors. Rising Treasury yields, another Federal Reserve rate hike, elevated oil prices, and geopolitical tensions created significant volatility across global markets. Yet beneath the headlines, many of the underlying macroeconomic indicators continued to point toward a resilient economy and a market environment that remains supportive for risk assets.
The S&P 500 experienced a brief period of consolidation after a strong advance, causing many investors to question whether the bull market is running out of steam. However, when we step back and examine liquidity, credit markets, economic growth, valuations, and technical structures together, the evidence suggests that the broader uptrend remains intact.
The key question investors should ask is not whether risks exist—they always do—but whether those risks are large enough to derail the current economic expansion and market cycle.
At this stage, the answer appears to be no.
While caution remains warranted, the weight of evidence continues to support a constructive outlook for equities. Combined with a favorable Elliott Wave structure, the current market environment suggests that the market may simply be consolidating before the next major advance.
In this month's market outlook, we will examine the most important developments from September and evaluate whether the S&P 500 is continuing to build a larger Wave 3 advance despite higher interest rates and rising bond yields.
September 2026 Market Summary
September delivered four major developments that shaped investor sentiment.
1. The Federal Reserve Resumed Tightening
The biggest macroeconomic development during September was the Federal Reserve's decision to raise interest rates by 25 basis points on September 16.
The Fed Funds Rate now sits at approximately 3.75%–4.00%, marking the first rate hike since 2023. Policymakers also indicated that another increase remains possible before year-end should inflation remain elevated.
Historically, investors tend to react negatively to rising interest rates because higher borrowing costs can slow economic activity and reduce corporate earnings growth.
However, not all rate hikes are equal.
Markets often perform well during periods when interest rates rise because economic growth is strong. Problems typically emerge only when policymakers tighten aggressively enough to push the economy into recession.
At present, economic data does not suggest that the U.S. economy is entering a recessionary environment.
Instead, the latest data continues to show moderate but healthy growth.
2. Inflation Continues To Moderate
Inflation remains one of the most closely watched indicators by both investors and policymakers.
September brought encouraging news on that front.
Core PCE, the Federal Reserve's preferred inflation gauge, increased 3.0% year-over-year during August, below expectations of 3.3%.
Current inflation readings are:
Core CPI: 2.4%
Core PPI: 4.6%
Core PCE: 3.0%
These figures suggest that consumer inflation pressures continue to cool even though producer inflation remains somewhat elevated.
The decline in inflation is important because it reduces the likelihood of aggressive monetary tightening in the future.
That said, investors should continue monitoring energy prices closely.
Crude oil finished the month at approximately $101.21 per barrel after briefly trading above $107.
If oil prices continue rising, inflation could become more persistent than expected.
For now, however, inflation remains under control and continues moving in the right direction.
3. Bond Yields Reached Multi-Decade Highs
One of the biggest concerns facing investors today is the rapid rise in Treasury yields.
The 10-Year Treasury Yield ended September at approximately 5.29%, its highest level in more than two decades.
Current yield levels stand near:
10-Year Treasury Yield: 5.243%
Higher yields create several challenges:
Increased borrowing costs
Lower valuation multiples
More attractive fixed-income alternatives
Greater pressure on heavily indebted sectors
Despite these concerns, equity markets have remained surprisingly resilient.
Historically, rising yields are not necessarily bearish for stocks if the increase is driven by stronger economic growth.
At present, the labor market and economic activity remain sufficiently strong to support corporate earnings growth.
This may explain why equities have absorbed higher yields better than many expected.
4. Geopolitical Risks Elevated Oil Prices
September also saw heightened tensions in the Middle East.
The Iran conflict escalated early in the month before easing through indirect negotiations regarding the reopening of the Strait of Hormuz.
Oil prices reacted sharply.
WTI crude oil traded between approximately $86 and $107 during the month before settling near $101.
Higher oil prices create inflationary risks because energy costs eventually affect transportation, manufacturing, and consumer spending.
However, current levels remain manageable.
Investors should monitor energy markets closely, but oil prices alone are unlikely to derail the broader bull market unless they continue rising significantly.
Macro Scorecard: What The Data Is Saying
Rather than focusing on headlines, investors should focus on objective indicators.
Let's review the current macro scorecard.
Net Liquidity
Current Reading:
$5.79 Trillion (Neutral)
3-Month Trend:
-0.85% (Neutral)
Liquidity remains one of the most important drivers of asset prices.
Although liquidity has softened slightly over the past three months, the decline remains modest.
Importantly, liquidity conditions are not deteriorating at a pace typically associated with recessionary environments.
As long as liquidity remains stable, risk assets should continue receiving support.
Current conditions suggest a neutral to mildly positive backdrop for equities.
Credit Markets Remain Healthy
Current Credit Spread:
3.12%
Assessment:
Risk-On
Credit spreads remain relatively tight.
Historically, major bear markets are often preceded by rapidly widening credit spreads as lenders become increasingly concerned about economic conditions.
Today's credit environment shows little evidence of systemic stress.
The bond market is not signaling the type of financial deterioration typically associated with an impending recession.
This remains one of the strongest bullish signals currently available.
Yield Curve Continues To Improve
Current Status:
10Y-2Y Spread Not Inverting
Assessment:
Positive
The yield curve has normalized significantly compared to previous years.
Historically, prolonged yield curve inversions often precede economic slowdowns.
While the yield curve is not a perfect forecasting tool, the current structure suggests economic conditions remain relatively healthy.
The normalization process is another indication that recession risks may be lower than many investors expected.
Economic Growth Remains Resilient
Labor Market Strength
The labor market remains one of the strongest pillars supporting the U.S. economy.
Current Initial Jobless Claims:
197,000
Assessment:
Very Healthy
Current Unemployment Rate:
4.1%
Assessment:
Healthy
Despite higher interest rates, businesses continue hiring and layoffs remain limited.
Historically, meaningful economic contractions are usually accompanied by rising unemployment and deteriorating labor market conditions.
Neither of those conditions currently exists.
The labor market continues supporting consumer spending and economic activity.
Manufacturing Continues Expanding
Current ISM Manufacturing Reading:
54.5
Assessment:
Growth Continues
A reading above 50 generally indicates economic expansion.
Current levels suggest manufacturing activity remains positive despite tighter financial conditions.
While growth is no longer accelerating at the pace seen during earlier stages of the recovery, expansion continues.
This is another sign that the economy remains on stable footing.
Long-Term Debt Risks Continue Building
Although short-term economic conditions remain favorable, longer-term structural challenges continue developing.
Investors should pay attention to these trends.
Government Debt To GDP
123.3%
Assessment:
High Debt Burden
Federal Budget Balance
-5.9%
Assessment:
Large Deficit
Total Credit Market Debt To GDP
365.2%
Assessment:
High Leverage
Debt Growth Minus GDP Growth
+0.57%
Assessment:
Mild Leverage Build-Up
Federal Interest Expense As A Percentage Of GDP
3.15%
Assessment:
Watch Closely
These indicators do not suggest an immediate crisis.
However, they highlight a growing dependence on debt throughout the economy.
Higher debt levels increase sensitivity to future interest rate increases and could become a larger issue over the coming decade.
For now, these remain longer-term risks rather than immediate threats.
Valuation Check: Is The Market Expensive?
One of the most common concerns among investors is valuation.
The current Implied Equity Risk Premium sits at:
4.14%
Assessment:
Fair Valuation
The Equity Risk Premium measures the additional return investors expect from equities compared to government bonds.
Current readings suggest:
Stocks are not extremely cheap
Stocks are not excessively expensive
Valuations remain reasonable relative to interest rates
This does not imply that markets cannot experience corrections.
However, it does suggest that valuations alone are unlikely to trigger a major bear market.
Current pricing appears broadly consistent with the macroeconomic backdrop.
Dollar Trend Remains Supportive
The U.S. Dollar remains in a long-term downtrend based on the weekly timeframe.
Historically, a weaker dollar tends to support:
Global liquidity
Commodity prices
Emerging markets
Multinational corporate earnings
Risk assets
This remains a favorable tailwind for equities.
As long as the dollar continues trending lower, global financial conditions should remain relatively supportive.
Elliott Wave Analysis: Wave 3 Appears Intact
From a technical perspective, the market continues displaying characteristics consistent with an ongoing Elliott Wave bull market.
The current structure suggests:
Wave (1): Initial Advance
The first impulsive move established the foundation of the new uptrend.
Wave (2): Corrective Pullback
A sharp retracement followed before buyers regained control.
Wave (3): Powerful Advance
The market then entered a strong impulsive rally supported by improving fundamentals and liquidity conditions.
Wave (4): Current Consolidation
Recent price action appears consistent with a consolidation phase occurring within a larger Wave 3 structure.
This distinction is important.
Many investors mistakenly interpret consolidations as the start of bear markets.
However, consolidations are a normal part of healthy bull markets.
Wave 3 is traditionally:
The strongest wave
The longest wave
The most powerful advance
Supported by improving participation
The current consolidation may simply represent a pause before the next upward move.
As long as major support levels remain intact, the broader Elliott Wave structure remains bullish.
What Could Invalidate The Bullish Outlook?
While the outlook remains constructive, investors should monitor several key risks.
Further Surge In Treasury Yields
A significant acceleration above current levels could pressure equity valuations and economic growth.
Oil Prices Continue Rising
Persistent oil prices above $100–$110 could reignite inflation concerns.
Credit Spreads Begin Widening
A rapid increase in credit spreads would signal deteriorating financial conditions.
Liquidity Deteriorates
A meaningful decline in Net Liquidity would reduce support for risk assets.
Labor Market Weakness Emerges
Rising unemployment or increasing jobless claims would raise recession concerns.
September 2026 Investment Outlook
The overall macro backdrop remains constructive.
Current positives include:
✅ Healthy labor market
✅ Expanding manufacturing activity
✅ Tight credit spreads
✅ Stable liquidity conditions
✅ Fair equity valuations
✅ Long-term dollar weakness
Risks remain present, particularly rising bond yields and higher oil prices.
However, the weight of evidence continues to support the view that the broader bull market remains intact.
From both a macroeconomic and technical perspective, the market appears to be consolidating within a larger uptrend rather than entering a major bear market.
If the Elliott Wave count remains valid, investors may still be witnessing the continued development of a larger Wave 3 advance.
Final Thoughts
September 2026 reminded investors that markets rarely move in a straight line.
Rising Treasury yields, geopolitical tensions, and elevated energy prices created volatility throughout the month. Yet beneath the headlines, economic growth remained resilient, credit markets stayed healthy, liquidity remained stable, and inflation continued moderating.
While risks should never be ignored, successful investing requires focusing on objective data rather than emotional narratives.
For now, the evidence suggests that the bull market still has room to run.
Investors should continue monitoring liquidity, credit conditions, economic growth, inflation, and Treasury yields closely. These factors will ultimately determine whether the current consolidation evolves into a larger correction or becomes the launching pad for the next phase of the bull market.
Based on today's data, the balance of evidence continues to favor the latter.
Disclaimer: This article is for educational and informational purposes only and does not constitute financial advice, investment advice, or a recommendation to buy or sell any security. Past performance is not indicative of future results. All investments involve risk. Please conduct your own research and consult a qualified financial adviser before making any investment decisions.
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