Published October 2, 2026
Since COVID, interest rates around the world have been rising at an unprecedented pace. The past 40 years through 2020 saw global interest rates gradually decrease and, as a result assets including real estate and stocks appreciated to bubble levels. The rise of AI while phenomenal has only further increased the risks.
We cannot understate the risk here. Recently, Warren Buffett at this annual shareholder meeting explicitly called out the danger stating that the US is “operating at a fiscal deficit now that is unsustainable…” he continued, “We are doing something that is unsustainable and it has the aspect to it that it gets uncontrollable to a certain point.”
Debt to GDP (%) – selected countries
The implications are significant and include slowing growth possibly leading to recessions (or worse), constraints on governments’ abilities to fund social safety nets, national defense, maintain critical infrastructure and invest for the future well-being of their citizens as increasing interest expenses eat away at financial resources. The obvious winners are those countries and individuals with the lowest debts that are able to take advantage of investing at higher rates.
How will this impact stocks you ask? The September 2026 sector performance tells part of the tale: the most rate sensitive parts of the market were down the most while technology shares with strong cash flows and comparatively low debt rose.
Market Update
Investors sold everything on Monday as yields shot higher, with the 10Y treasury yield hitting 5.25% its highest rate since 2007. Nvidia announced $150B increase to their share buyback program however MongoDb’s CEO suddenly resigned to take a job at Meta. The S&P500 (-0.77%), NASDAQ 100 (-1.08%) and Russell 2000 (0.69%) all fell on the day.
Tech stocks rebounded on Tuesday with the NASDAQ 100 up 0.21% as oil prices fell slightly and traders stepped in on the heels of Monday’s losses. Rate anxiety continued to clutch the markets and all other indices fell fractionally.
On Wednesday, investors welcomed inflation data showing a 3.4% Y-Y increase versus the prior 3.7%. Still most stocks fell, with the S&P500 down -0.25% and the Russell 2000 down -0.39%. AI optimism helped the NASDAQ 100 post a 0.25% gain.
Thursday stocks opened higher but quickly sagged under the weight of rising rates as the 10Y US treasury peaked at 5.31%, a 24-year high and oil prices rose. Investors flooded into safe haven treasuries mid-day pushing yields back down as the major indices all continued to sad. High yield bonds (HYG) showed particular weakness as did regional banks (KRE).
On Friday a weaker payrolls report showed that the US added only 29,000 jobs in September (vs. a 90,000) estimate, sparking a broad-based rally as investors’ minds were eased that the Fed would be forced to raise rates soon. Still, investors took gains throughout the day and stocks closed well off their highs. All the major indices rose, with the S&P500 gaining 0.7%, the NASDAQ 100 gaining 1%, and the Russell 2000 small cap index index rising 0.9%
For the week, the NASDAQ 100 led the way higher despite rate fears and weakening payrolls, closing +0.65%. The S&P 500 and the Russell 2000 both closed fractionally down 0.26%.
Warm wishes and until next week.