The U.S. economy remains on solid footing, supported by steady employment and consistent consumer spending. With corporate balance sheets in good shape and overall credit quality remaining stable, the environment continues to provide a healthy backdrop for ongoing earnings growth.
A major driver of this momentum is the significant infrastructure investment surrounding artificial intelligence, which is actively powering the broader economy. While this massive technology build-out is competing for funding alongside large government deficits, there is still plenty of capital available globally for strong projects, in our opinion. Ultimately, slightly higher interest rates simply reflect a return to a more normal historical environment within a highly productive market, keeping our broader outlook positive.
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Last week was a reminder that markets rarely move in a straight line. Investors were faced with firmer-than-anticipated inflation data, rising energy prices, and increased volatility in some of the market's strongest-performing sectors. At the same time, earnings season began, providing an early look at how companies are navigating an environment marked by higher interest rates and still-elevated inflation.
Inflation Remained in Focus
September inflation data came in somewhat firmer than anticipated and quickly became the week's dominant market story.
The Consumer Price Index (CPI) rose 0.6% during the month, pushing the annual inflation rate to 3.7%, up from 3.4% in August.1 Higher gasoline prices drove much of the increase, accounting for more than half of the monthly gain. Core inflation was also somewhat firmer than expected, reflecting continued pressure in categories such as shelter and travel services.
The Producer Price Index (PPI) told a similar story. Higher fuel and transportation costs contributed to a stronger-than-expected reading, suggesting that energy-related price pressures are continuing to move through parts of the economy.2
While one month's data does not establish a new trend, the reports reinforced an important point: inflation is moving lower than its peak levels, but the path back to the Federal Reserve's 2% target is unlikely to be smooth or linear.
One of the week's more surprising developments occurred in the bond market. Despite the firmer inflation reports, the yield on the 10-year U.S. Treasury declined during the week and finished near 5.1%. Investors appeared to view much of the inflation surprise as tied to energy prices rather than a broad-based reacceleration in inflation.
Leadership Shifted Beneath the Surface
While major indexes delivered mixed results, some of the week's most meaningful shifts occurred beneath the surface of the market.
Technology and artificial-intelligence-related stocks, which have been among the strongest performers throughout much of 2026, experienced increased selling pressure. Investors became more focused on valuations, financing costs, and the substantial capital required to support ongoing AI infrastructure investment. Semiconductor shares were particularly weak, leading to a period of consolidation across some of the market's most significant winners.
At the same time, areas such as financials, healthcare, and consumer staples generally held up better. Rather than broad-based selling, the week's market action appeared to reflect a rotation in leadership as investors looked beyond the sectors that have driven much of the market's gains this year.
This type of rotation is not unusual. In fact, periods where market leadership broadens can often be a healthy sign, helping reduce reliance on a relatively small group of stocks and creating opportunities in other areas of the market.
Earnings Season Began
Third-quarter earnings season also got underway, led by several large financial institutions.
Early results from the banking sector generally pointed to an economy that remains on solid footing. Consumer spending trends have remained healthy, business activity has continued, and management teams largely avoided signaling a significant deterioration in economic conditions. While executives acknowledged uncertainty surrounding interest rates and inflation, the initial tone was generally encouraging.
As earnings season expands over the coming weeks, investors will be paying close attention not only to recent results but also to management guidance. Questions surrounding profit margins, labor costs, energy prices, and future business investment are likely to become increasingly important. Investors will also be watching to see whether earnings growth broadens beyond a relatively small group of large technology companies.
Our Perspective
Not every inflation report is going to show the same degree of progress, and last week's data was a good example of that. While the data came in stronger than expected, much of the increase was tied to energy prices, and the broader inflation trend remains considerably improved from where it stood a year ago.
More importantly, several underlying fundamentals remain supportive. The economy continues to expand, corporate earnings are generally holding up well, labor-market conditions remain healthy, and early earnings reports from the banking sector have not pointed to significant cracks in economic activity.
The recent rotation away from some of the market's strongest-performing sectors may create periods of volatility, but it may also help broaden market leadership over time. As we move deeper into earnings season, corporate results and forward guidance are likely to have a greater influence on markets than any single economic release. For now, the combination of steady economic growth, resilient earnings, and improving long-term inflation trends continues to provide a supportive backdrop for investors.
[2] Producer Price Index News Release summary - 2026 M09 Results
