Major stock indices were down in September with mixed results for the third quarter. Bonds declined as persistent inflation and the Federal Reserve’s first rate increase since 2023 pushed interest rates higher. The 10-year U.S. Treasury yield has risen 1.34 percentage points since the U.S.-Iran conflict began in late February. Further pressuring interest rates is surging debt issuance to fund data center development.
Strong stock indices are masking weakness beneath the surface. Although major U.S. indexes remain near record highs, over 40% of S&P 500 companies have negative returns over the past year. The average member is about 20% below its individual record high. As of September 22, 52% of the index’s companies traded below their 200-day moving averages, a widely followed measure of long-term price trends. The last time so many S&P 500 companies were below their 200-day moving average while the S&P 500 was within 1% of its all-time high was in March 2000.
Artificial intelligence continues to siphon capital from other market segments. According to The Information, OpenAI and Anthropic have made more than $1 trillion in future spending commitments to major U.S. cloud providers. Those providers, in turn, have approximately $2 trillion in planned spending, much of it for semiconductors, power, and data centers. A deceleration in revenue growth or capital-raising friction at either firm represents the foremost systemic risk to U.S. equities today. Markets have extended a two-year outperformance streak for high-beta equities relative to low-volatility alternatives, creating an extreme anomaly relative to historical norms. When our Core Value portfolio navigated comparable headwinds in 1998–1999, it trailed the S&P 500 by a cumulative 37.4% net before outperforming the index by 41.2% over the ensuing three-year cycle. While past performance does not guarantee future results, we remain committed to disciplined downside risk management rather than chasing speculative momentum.