Market Report: October 2026

Badger Football and the Economy

Going into this season, the Wisconsin Badgers football team had a lot of uncertainty to deal with, from a new quarterback (another one!), multiple new players, a coach on a scorching hot seat, and a fan base that was less than enthused. An up and down first game (against great competition) and a less than stellar second game (against very weak competition) did nothing to cool the hot seat or improve fan expectations. But then, a much better third game (against weak competition), an improbable win against a good team on the road, followed by another big win have certainly changed some people’s perception of the program, even if the play on the field hasn’t been as clean as desired. So, poor sentiment going into the season, followed by reasonable results on the field and off (recruiting), have helped improve that sentiment, at least in the short run. The results have been both volatile and better than expected and the outlook is improving.

The markets and the economy, as we entered 2026, were the opposite of Badger football. Both the markets and the economy enjoyed a very good year in 2025, and expectations were for more of the same. Interestingly, however, consumer sentiment was falling as inflation remained high, and housing affordability remained challenging. Tariff issues, war issues, inflation issues, and now bond market issues have all raised the level of uncertainty in an otherwise decent year. So, unlike Badger football, the picture seems to be getting cloudier and, therefore, volatility is increasing.

The questions, of course, are can the Badger football team keep winning, and can the strength in the economy help clear the skies of uncertainty facing investors? While we will not dig too deep into the Badgers, let us look at the markets and the economy.

Financial Markets

Unlike the fortunes of the Badger football team, the markets gave up some ground, as all major indexes except the NASDAQ posted negative numbers during September. For the month of September, the Dow lost 4.12%, the S&P 500 lost 0.35%, the S&P 400 lost 4.22%, the S&P 600 lost 5.57%, and the EAFE lost 3.33%. As the lone equity index to add value, the NASDAQ gained 1.93% during the month. Given the volatility in the bond markets over the past couple of months, it was no surprise to see that the Bloomberg US Aggregate Bond Index lost 2.61% during the month. On a brighter note, all the equity indexes are near or above their long-term averages on a year-to-date basis. So, it has just been a “normal” year, right? Haha, yeah right!

Earnings are expected to remain strong, which should bolster stocks once reporting season kicks off in mid-October, and that may help ease the tension a bit.

On the fixed income side of the ledger, the Fed raised rates a quarter point during September, helping push short-term rates higher. The ten-year U.S. Treasury has pushed past the magical 5% level, adding to investors’ unease. Market rates have been driven higher by a variety of factors, including the government debt, an appetite for a massive amount of debt by those in the AI/data center sector, and fears over higher inflation meaning supply potentially outstripping demand. But, somewhat overlooked, is that the economy is strong, and that is keeping rates higher as well. The Fed typically cuts rates when the economy is struggling, not the other way around.

Market valuation data as of September 30th, 2026, however, continues to show markets as strongly overvalued, although some have dropped slightly (the P/E ratio and the CAPE ratio) as strong earnings data has helped offset market gains. It is interesting to note that the Forward P/E is now slightly below its 5-year average.

The Economy

Like the Badger football team this year, our economy is at a crossroads. Many economic data points, such as the unemployment rate, manufacturing strength, consumer spending, corporate earnings, and even GDP, all indicate an economy that is doing quite well and growing. On the other hand, inflation remains elevated and seems to be more pervasive, consumer sentiment is near all-time lows, borrowing costs are rising, and out of control governmental debt all point to a fragile economy. The war impacts many of these variables and even a quick end to the war will not fix things overnight as higher energy prices will continue to filter through the economy even after prices at the pump begin to come down. Looking ahead we will soon head to the polls for the mid-term elections. While the results of the election will not immediately be felt, the results will certainly impact fiscal policies, the war, taxes, and more. The markets like the status quo and so either gridlock in Washington (Democrats win one or both houses of Congress) or the Republicans maintaining control might be the preferred result of the elections. For now, like watching Colton Joseph and the Wisconsin offense to see how successful the Badger season will be, keep an eye on consumer spending and the unemployment rate. Should one or the other falter, economic uncertainty will increase and potentially head towards a recession, but if both metrics remain as they are, or even improve slightly, the economy will continue to grow quite nicely.

GDP (Gross Domestic Product) – Like the outlook for the Badger football team heading into a bye week after a big win, the GDP data has been revised somewhat higher even during the current quarter. First quarter GDP grew by a revised 2.5% (up from 2.1%), and, per the third estimate, the second quarter grew by 2.2% (up from 1.5%). Full year estimates were around 2.2% but will push towards 2.5% now. Early data for 2027 is calling for more of the same. GDPNow’s third quarter estimate has come down a bit, as expected, but still sits at a strong 3.7% as of October 1, 2026. This is all encouraging and, like the Badgers, we could be in for better things as the year unfolds should the team, and the economy, not falter.

Inflation – The more things change, the more they stay the same. Unfortunately, that is not a good thing when it comes to what is happening with inflation. August saw the rate climb 0.4% during the month to an annualized rate of 3.4%. Blame energy prices for most of the increase, as they increased 2.1% in the month and 16.3% over the past year. While the news is not great, obviously, it is interesting to note that the average inflation rate in the United States from 1914 through 2026 was 3.29% – not much different than what we are currently experiencing. In fact, if you took the CPI less energy, the rate would be about 2.5% currently, which means that if energy prices stabilize, the CPI would be 2.5% within the next six months or so. Truflation also posted a higher number, as its reading hit 2.77% as of October 1^st, 2026.

Employment – Where is Yogi Berra when we need him? He famously said, “It’s like déjà vu all over again,” and I am sure he must have been talking about the unemployment rate in 2026! The rate has stayed between 4.1% and 4.3% for most of this year and September was no different. While only adding 29,000 jobs during the month, the unemployment rate was little changed at 4.2%. Similarly, average hourly earnings crept up by about five cents during the month as well. These numbers may not be spectacular by any means, but they are music to the Fed’s ears, as they allow the Fed to focus on the inflation side of their dual mandate. The Sahm Rule sits at 0.00 as of October 2^nd, up from -0.07 a month earlier. Not sure how to interpret a flat or negative number, but anything above 0.50 would be considered recessionary and anything below that number (especially if falling) would indicate a recession is not imminent or likely. Madison’s preliminary unemployment rate for August stood at 2.90%, while Wisconsin’s preliminary unemployment rate came in at 3.20%. Both remain well below the national average. For now, the Badger football team and the local unemployment rate are something to cheer about!

The Fed Watch

September saw the Fed raise interest rates by twenty-five basis points for the first time since July of 2023. Several factors impacted the Fed’s decision to raise rates, such as the rate of inflation, the stable employment environment, uncertainty over geopolitical events, and the overall strength of the economy.  Given the stable jobs market, the Fed is focused on bringing down inflation and will continue to raise rates if the economy continues to grow. Expectations are that the Fed will raise rates, perhaps as early as October, but more likely in December. The good news so far, is that there is no “cost push” inflation due to rising wages. In fact, wages have not totally kept up with inflation (wages up 3.0% over the past year versus the CPI up 3.4%), and that may help the Fed take a measured approach to raising rates. The Fed does not want to raise rates too fast or too far because that would put the brakes on the economy, much like the Badgers playing stronger competition in the coming weeks. Does not mean the economy cannot continue to grow, or that the Badgers cannot win their games, but that the going will be tougher.

Outlook/Summary

Even though the Badger season is going well, there is an underlying current of uncertainty over where the season will end up. The same can be said for the economy. Many of the data points that economists follow are pointing to a strong economy, but the uncertainty over the war, inflation, and interest rates means many investors are concerned over the direction of their portfolios. While no one can say for sure where things are headed, it is best to follow fundamentals, and right now the fundamentals (earnings) are pointing higher over the remainder of this year and next. That should be good for stocks. On the bond side, things are a bit dicier than most years due to the rise in yields. To deal with higher rates, one can do a variety of things, most of which have pluses and minuses. Increasing cash or cash equivalent holdings means earning more interest as rates rise and a degree of safety, but losing purchasing power can be problematic. Taking on lower grade credit as a main strategy means more interest earned, but at a risk of higher defaults on the bonds owned. Increasing maturities and/or duration in one’s holdings can increase the rate of interest earned as well, but if interest rates were to rise dramatically, the loss of principal would be painful. Having said that, however, if rates were to stabilize or only increase slightly, then extending maturities and/or duration can work quite well, as any loss of principal due to a small increase in interest rates would be offset by the higher yields on the bonds or bond portfolio. In addition, any drop in rates would mean principal gains that would be partially offset by the drop in yields. A balance of the three approaches makes sense right now.

As we noted last month, things can change quickly, although the one thing that will not change is change itself. This year we have already faced war with Iran, rapid technological change due to AI and the data center build out, and higher interest rates, and more change may be coming given the mid-term elections next month. But, for now, as Journey told us, “Don’t stop believin’,” both in the Badgers and the economy. No matter what, our approach will not change. We will not chase momentum, nor market time, but will remain diversified and look to protect the downside while seeking upside return. As we have said, it is a slow and steady approach, but it also allows us to deal more effectively, we believe, with the world around us. On Wisconsin!

Should you like to discuss your portfolio or learn if our strategy can work for you, please call the Wealth Management division of Lake Ridge Bank at (608)826-3570. We look forward to speaking with you.

Market/Economic Data

As of September 30th, 2026…. Unemployment data is through August for national, August for Wisconsin (preliminary) and Madison (preliminary); inflation data is through August, Truflation as of 10/1/26:

Thank you for your business – we look forward to speaking with you soon. (Note – this commentary used various articles from JP Morgan, Morningstar, the Wall Street Journal, Investor’s Business Daily, Northern Trust, CNNMoney.com, msn.com, Kiplingers.com, nytimes.com, Fidelity Investments, American Funds, LPL Financial and other tools as sources of information.

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