Where We See Markets Heading Over the Next Six Months
A mid-October 2026 outlook from Nexus Wealth Management
Key Takeaways
U.S. equities: We remain constructive but selective into the spring of 2027. Earnings are doing the heavy lifting. Valuations have actually come down even as prices have risen. We favor durable earnings, a value tilt, and real-asset exposure. We size concentrated AI holdings with care.
International equities: We keep a purposeful allocation abroad. Emerging markets have been one of the top-performing areas this year, and several research houses still favor them. But oil and the Middle East argue for steady sizing rather than a large bet.
U.S. bonds: This is the biggest change since our September outlook. With the 10-year Treasury above 5%, bonds now pay meaningful income. We see more value in short- and intermediate-term Treasuries than we have in years. We're still careful about long maturities.
International bonds: Central banks abroad are raising rates too, and the dollar's path is less certain than it was. Foreign bonds and currency exposure should earn their place in a portfolio — not be held automatically.
Overall: The economy is growing. Inflation is running hotter than anyone would like. The Federal Reserve is leaning toward tighter policy. That's a workable environment for long-term investors whose portfolios are built for it. Discipline and planning matter more than predicting the next Fed meeting.
Over the past month, the story moved from the stock market to the bond market. On September 16, the Federal Reserve raised its target range for the federal funds rate by a quarter point to 3.75%–4.00% — its first increase since 2023. By the September 30 close, the 10-year Treasury yield had reached 5.29%. It pushed higher in early October, touching 5.36% intraday on October 7, its highest level since April 2002, before easing to 5.10% at the close on October 15 after strong Treasury auctions.
Stocks, meanwhile, have held up well. The S&P 500 closed at 7,744 on October 15. Both the S&P 500 and the Nasdaq set intraday records during the week of October 5.
The economic data since our last outlook points in two directions. September consumer prices rose 3.7% from a year earlier, up from 3.4% in August. Gasoline accounted for more than half of the monthly increase. Job growth, by contrast, slowed to 29,000 in September. The unemployment rate was 4.2%. That's the backdrop our investment management team is working with as we look out roughly six months.
The 10-year U.S. Treasury yield in 2026. Source: U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates, through Oct. 15, 2026.
The Federal Reserve and the U.S. Economy
The Federal Reserve's posture has changed more over the past twelve months than at any point in the last several years. A year ago, the Fed was lowering rates — it cut to 3.50%–3.75% on December 10, 2025. Today it's raising them. Minutes from the September meeting showed that most participants believed another increase could be appropriate before year-end if inflation doesn't move meaningfully closer to the 2% goal. They pointed to higher energy prices tied to the Middle East, continued AI-related investment, and the lingering effects of tariffs as the main reasons inflation has stayed elevated.
The September inflation report, released on October 14, did little to ease those concerns. Headline consumer prices rose 0.6% for the month and 3.7% over the year. Core prices — which exclude food and energy — rose 0.3% for the month and 2.6% over the year, up from 2.4% in August. Energy prices were up 20.4% from a year earlier. The Fed's preferred measure, the PCE price index, rose 3.4% over the year in August, with the core measure at 3.0%.
Consumer prices, August vs. September 2026. Source: U.S. Bureau of Labor Statistics, CPI releases of Sept. 11 and Oct. 14, 2026.
The labor market is the counterweight. Payrolls rose by 29,000 in September — below the 45,000 average monthly gain of the prior twelve months. The July and August figures were revised down by a combined 60,000. The unemployment rate has stayed in a narrow range of 4.1% to 4.3% since March. Average hourly earnings rose 3.0% over the past year, below the pace of inflation. Our read: hiring has slowed, layoffs remain low, and wage growth isn't adding to price pressure. That matters, because it makes a long series of rate increases less likely.
Payrolls as first reported and as revised. Source: U.S. Bureau of Labor Statistics, Employment Situation releases of Sept. 4 and Oct. 2, 2026.
Growth itself remains firm. The second-quarter GDP estimate was revised up to 2.2%. The September manufacturing and services surveys from the Institute for Supply Management both indicated expansion. Business investment tied to AI continues to support activity. The Fed's next meeting is October 27–28, followed by a December meeting. Several of the houses we follow expect one more increase this year — most likely in December — and then a pause. We think that's a reasonable base case, while recognizing that another hot inflation report could bring the move forward.
The fed funds target range over the past year. Source: Federal Reserve FOMC statements of Oct. 29, 2025, Dec. 10, 2025, and Sept. 16, 2026.
U.S. Equities
We stay constructive on U.S. equities over the next six months. We're selective about how that exposure is built. The case rests on earnings. Through the third quarter, 86% of S&P 500 companies beat earnings estimates. Calendar-year 2026 earnings growth estimates have risen to roughly 32%. Third-quarter results now being reported are expected to show growth of nearly 30% from a year earlier. Earnings have grown faster than prices, so valuations have actually come down this year even as the S&P 500 has risen. That gives the market more room to absorb higher interest rates than it had in 2022.
The backdrop is still growth versus rates. Strong economic news can pressure stocks if it pushes the Fed toward tighter policy. The market has already shown it reacts quickly to moves in the 10-year yield. We continue to favor businesses with durable cash flow, real assets such as infrastructure and commodities, and select cyclicals. Our factor positioning has leaned further toward value this quarter, because rising rate expectations have historically favored value over momentum. Leadership has been uneven. During the week ended October 9, consumer staples and utilities led the S&P 500 while industrials and technology lagged, even as the broad indexes approached record levels.
AI is both an opportunity and a concentration risk. Many of the companies driving earnings growth are tied to the AI buildout, and we want clients to participate in that growth. We also want position sizes that let a household to sit through a sharp pullback in the most crowded names without being forced into the wrong decision. Among the other houses we follow, views have become more cautious at the margin. BlackRock moved its U.S. equity view from overweight to neutral on October 12, calling the change short-term risk management rather than a shift in conviction. It continues to prefer AI and technology within that stance. J.P. Morgan and Franklin Templeton remain constructive and expect equities to move higher. Our posture sits between those views: stay invested with intention, favor cash-flow durability over dependence on falling rates, and rebalance into strength rather than chase it.
International Equities
We treat international equities as a purposeful diversifier, not an afterthought. Emerging markets have been one of the top-performing areas this year. Through September 30, the MSCI Emerging Markets Index returned 23.38% year to date, compared with 10.33% for developed international markets. Much of that strength came from Asia, where Korea and Taiwan are closely tied to the semiconductor and AI supply chain. During the week ended October 9, emerging markets again outperformed developed markets.
Year-to-date returns through Sept. 30, 2026. Sources: MSCI (net total return, USD); Dow Jones Market Data via FactSet (S&P 500 price return).
We're mindful of concentration abroad as well as at home. Markets heavily weighted toward AI-related manufacturers can deliver strong earnings and sharp drawdowns in the same season. China remains a highly competitive exporter, which supports a selective approach rather than a blanket emerging-markets position. Oil is the other swing factor. Brent crude briefly traded above $105 a barrel during the week of October 5 as attacks on shipping and energy infrastructure in the Gulf renewed concerns about supply.
Among the houses we follow, BlackRock maintains an overweight to emerging-market equities. Invesco has recently favored markets outside the U.S. Others prefer to stay closer to neutral given the energy risk. Our posture for the next six months: keep international exposure, emphasize quality and earnings resilience, and prepare for uneven leadership from country to country rather than a smooth global rally.
U.S. Bonds
"Bonds finally pay again. For the first time in years, we see more value in short-term Treasuries than in reaching for more risk."
This is where our view has shifted most since September. For much of the past several years, bonds offered modest income and questionable protection. Today the 10-year Treasury yields more than 5%, and short-term Treasuries yield well above 4%. On October 15, the two-year Treasury yielded 4.77%, compared with 3.60% a year earlier. Higher starting yields have historically been one of the strongest indicators of future bond returns. They give investors a cushion against further rate increases.
The Treasury yield curve, one year apart. Source: U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates.
We see the most value in short- and intermediate-term Treasuries and high-quality bonds. Those maturities offer attractive income with less sensitivity to further increases in long-term rates. We remain careful about long maturities. The federal deficit is approaching two trillion dollars a year, and investors may continue to demand more compensation to hold long-term bonds. We also recognize that bonds and stocks can move together when inflation is elevated. So we treat bonds first as a source of income and stability within a plan, not as a guaranteed hedge.
What cash and Treasuries pay today versus a year ago. Source: U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates.
Several of the houses we follow share this shift. On October 12, BlackRock upgraded short-term Treasuries to overweight and long-term Treasuries to neutral, ending an underweight it had held for most of the past six years. Franklin Templeton also upgraded its view on Treasuries. Goldman Sachs described the front of the curve as the best all-purpose option whether rates rise, fall, or hold steady. Credit spreads remain tight, so we prefer to be paid for quality rather than reach for yield in lower-rated bonds. For clients in higher tax brackets, municipal bonds may offer attractive tax-equivalent yields.
International Bonds
Rates are rising outside the U.S. as well. The Bank of Japan raised its policy rate in September. Japanese 10-year yields have climbed to around 3%. European yields rose in early October, led by France amid fiscal concerns. Higher yields abroad improve the income available from foreign bonds, but they also mean the old pattern of foreign bonds steadying a portfolio can't be assumed.
The dollar outlook is less settled than it was a month ago. Some houses still expect a firmer dollar in the near term. J.P. Morgan has suggested that a Fed that stops sooner than other central banks could set the stage for a renewed dollar decline in 2027. Given that uncertainty, we prefer to be deliberate about foreign bond and currency exposure — holding it where it serves a clear purpose in the portfolio.
Where the Research Houses Agree and Differ
Areas of agreement
Most of the institutional teams we follow agree on the broad picture. The U.S. economy is growing. A recession is not the central forecast. Inflation is running above the Fed's goal, but the pressure is coming from energy and goods prices, not wages. Most expect one more Fed increase this year and then a pause. Most also agree that higher yields have made bonds more attractive for income, and that credit spreads are too tight to reward reaching for yield. Oil and the Middle East remain the main risk that could change the picture quickly.
Where views differ
The meaningful disagreements fall in three areas. The first is how far the Fed will go. Markets have priced in considerably more tightening than most of the houses expect. BlackRock calls that pricing overdone. J.P. Morgan and Goldman Sachs place their forecasts on the dovish side of the market. Our primary research partner sees a different risk — that stronger growth and fiscal pressure keep inflation higher for longer, so rates may need to stay higher than markets expect. The second is long-term bonds. J.P. Morgan believes long rates are near the top of their range and biased lower. Others remain cautious because of deficits and heavy issuance. The third is how much U.S. equity exposure to hold. BlackRock has moved to neutral. J.P. Morgan and Franklin Templeton continue to expect higher prices. These are honest differences among serious teams.
Where major research houses stand. Sources: BlackRock (Oct. 12), Franklin Templeton (Oct. 9), Goldman Sachs AM (Oct. 6), Invesco (October 2026). Views summarized; not a recommendation.
How we see it
Our view is built on the work of our research partner and tested against the other houses. We expect stronger nominal growth than investors have been used to. We expect inflation that does not return neatly to 2%. That supports earnings but challenges long-duration assets. In practice, it means we stay constructive but selective on U.S. equities with a value tilt. We keep international exposure purposeful. We add to short- and intermediate-term high-quality bonds now that they pay a meaningful income. We are not making a single call on how far the Fed will go. We size these positions to each household's goals, cash needs, and comfort with risk.
What Has Changed Over the Past Year
Twelve months ago, the Federal Reserve was lowering rates. Most of the houses we follow expected that easing to continue. Several things have changed since then. The Fed has moved from cutting to raising rates. The 10-year yield has risen from 4.16% at the end of September 2025 to 5.10% on October 15. Houses that had been underweight Treasuries for years — most notably BlackRock — are now adding to them. Valuations have come down rather than up, because earnings have grown faster than prices.
Other things have held steady. Corporate earnings have remained strong. Most houses still expect growth rather than recession. The case for diversification across regions and styles has, if anything, strengthened. The caution around concentrated AI exposure that we described a year ago still applies.
What This Means for You
If you are approaching or living in retirement
This is an environment where planning matters more than headlines. Bonds can now contribute meaningful income. That makes it easier to build a cash and short-term bond reserve that covers several years of spending. That reserve lets the equity portion of the portfolio ride out volatility around Fed meetings and oil shocks without forcing sales at the wrong time.
If you have received an inheritance, windfall, or proceeds from stock options
With stocks near record levels and yields at multi-year highs, we generally favor investing new money in stages across equities and high-quality bonds rather than all at once. Short-term Treasuries can serve as a productive place to hold funds while that plan is carried out. We also address concentrated stock positions and tax lots deliberately.
If you hold a large amount of cash
Cash has been a comfortable place to wait. But short-term rates may not stay this high indefinitely. Locking in today's yields in short- and intermediate-term bonds is worth considering for money you will not need in the next year.
If you own a business
Higher borrowing costs affect credit lines, equipment financing, and expansion plans. They also improve the return on retained cash. We coordinate investment, tax, and retirement plan decisions so the business and the household balance sheet work together.
If you would like a second opinion
When markets shift this much, it is a sensible time to confirm that your plan still fits your goals. We look at the whole picture — investments, taxes, income planning, insurance, and estate documents.
This outlook reflects our current thinking based on institutional research and is not personalized investment advice. Past performance is no guarantee of future results.
Our Research Partnership
Nexus partners with SEI as part of how we manage discretionary portfolios. SEI's Investment Management Unit brings more than 150 investment professionals and a research budget of over $15 million to the work of portfolio construction and trading. That allows our team to concentrate on your plan, your taxes, and the decisions that a local fiduciary relationship should own.
We remain independent. We are not tied to a proprietary product shelf, and we do not receive compensation for recommending a particular fund family. Our recommendations start with your goals.
A Good Time to Talk
Markets have changed meaningfully in a short period, and that makes this a good time to talk. If you live in Missoula or elsewhere in Western Montana and would like to review how this six-month outlook applies to your household, we would be glad to meet. An initial consultation carries no cost and no obligation. You can schedule your call here.
About the Author
Robert Montes, CPFA®, is the lead Portfolio Manager at Nexus Wealth Management. He is responsible for analyzing market conditions, assessing economic trends, and developing wealth management strategies that help investors work toward their financial goals. Robert's team works with around 950 households and manages approximately 1,300 client accounts, and Nexus is recognized as one of the top-rated wealth management firms in Montana. A former U.S. Army Ranger and avid Brazilian Jiu-Jitsu practitioner, Robert brings discipline, focus, and a client-first mindset to every relationship.
About Nexus Wealth Management
Nexus Wealth Management is an independent financial advisory firm based in Missoula, Montana, serving individuals, families, and business owners throughout Western Montana. We specialize in personalized wealth management, retirement planning, investment strategy, and comprehensive financial advice grounded in a fiduciary standard.
Nexus is recognized as one of the top-rated wealth management firms in Montana, supported by more than 200 five-star Google reviews. To schedule a no-obligation consultation, visit nexuswealthmanagement.org or contact our Missoula office.
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