September 2026 Market Update: Why We Trimmed Our Biggest Bets

Key Takeaways

• Markets have climbed to new highs this year, pushing several of our strongest performing portfolio positions to larger weights than originally intended.
• Our investment committee is trimming concentration in select areas, including standalone momentum exposure, core AI and defense positions, and regional tilts, while maintaining our core convictions and a 1% equity overweight.
• The Federal Reserve raised interest rates again in September, but the pace has been measured, and corporate earnings growth continues to outpace stock prices, supporting our continued case for staying invested.
• Bonds continue to face a difficult backdrop, so we are broadening where fixed income return comes from rather than relying on duration alone.
• Historical patterns around midterm elections suggest late September and October may bring near-term volatility, though markets have often recovered well in the months that follow.

Watch the Full Market Update

I recorded a video walking through the portfolio adjustments we made this quarter, the data behind each decision, and what current market conditions could mean for your portfolio.

When a portfolio reaches new highs, it can be tempting to treat that number as a finish line. For our investment committee at Prosperity Capital Advisors, it is a signal to look more closely.

A strong market run does not just raise account balances. It can also raise concentration. Positions that have performed well can grow into a larger share of a portfolio than originally intended, increasing the amount of risk a portfolio is carrying without any deliberate decision to take on more of it.

This year gave our committee exactly that kind of moment, which is why we made a series of adjustments this quarter under a theme we are calling “Honey, We Shrunk the Bets.” We are keeping our highest-conviction ideas in place. We are trimming the size of some of our biggest positions.

Why Strong Performance Can Call for a Smaller Bet

This year’s rally has pushed several of our best performing positions to larger weights inside client portfolios, increasing concentration in exposures that have already delivered meaningful gains. At the same time, sharp reversals over the summer raised the amount of risk carried by some of those same positions, even while the broader market looked comparatively calm.

Trimming an exposure that has performed well is not a response to a strategy that failed. It is a forward-looking decision about whether the size of that position still matches the level of risk we want to carry.

Momentum stocks

This is most visible in how we are handling momentum stocks, a strategy built around holding whatever is currently outperforming. Momentum exposure has served portfolios well, and our conviction in the underlying opportunities has not weakened.

What has changed is our view on how large a standalone position in this theme should be, since the stocks that make up that strategy are set to shift again this November and could move toward companies we have less conviction in. Reducing a dedicated allocation here does not mean eliminating the theme from portfolios. It can still be expressed more flexibly elsewhere.

AI, defense, and regional positioning

We are applying a similar logic to core AI and global defense positions, along with our regional mix between U.S. and international stocks. Our conviction in AI as a long-term theme remains strong, and increasingly rests on the economics of adoption rather than infrastructure spending alone.

On the regional side, European companies are delivering their best earnings growth in four years, and record numbers of U.S. and international companies alike are beating earnings expectations. That broader participation is part of why we are resetting our regional positioning closer to neutral rather than concentrated in any one area.

Across all of these positions, believing in an opportunity and controlling the size of a bet on it are two different decisions, and this quarter’s changes are a matter of the latter.

Why We Are Staying Invested Through a Rate Hike

The Federal Reserve raised interest rates a quarter point in September, taking the federal funds target range to 3.75% to 4.00%. The move itself was not a surprise. Markets had been pricing in higher rates for months, so much of the impact had already been absorbed before the announcement arrived.

What matters more than the hike itself is the pace. This is a measured, gradual adjustment, not an aggressive scramble to catch up with inflation. The Fed has only one more quarter-point hike penciled in for the rest of the year. Compare that to 2022, when the Fed raised rates 425 basis points in just nine months against 9% inflation. History has generally been kinder to slow tightening cycles than fast ones: going back to 1988, the S&P 500 delivered positive returns over the following twelve months in six of the seven cycles like this one, with 2022 being the outlier.

Our confidence rests on something more durable than the Fed’s next move, though: corporate earnings. Forward earnings expectations have risen faster than stock prices this year, which means the market has become less expensive even as prices climbed. Barclays currently estimates 30.8% earnings growth for the S&P 500 in 2026, and that strength is broad, not just a handful of technology companies carrying the market.

Why Bonds May Need a Broader Toolkit

A conflict-heavy geopolitical backdrop and ongoing uncertainty around the Fed and inflation have created real headwinds for bonds this year. Rather than lean on duration or headline income alone as a buffer against volatility, we are continuing to broaden where fixed income return comes from, adding selective active exposures in bonds and alternatives that can source returns from different drivers.

This matters more for some portfolios than others. If a meaningful portion of your plan depends on income or cash flow from fixed income, this is a good time to talk with your advisor about what alternatives might make sense given your specific needs.

What This Could Mean as We Head Into Fall

Higher energy prices, higher interest rates, and ongoing geopolitical uncertainty can create a more difficult short-term path even where the medium-term earnings outlook remains intact.

The calendar adds one more consideration worth being aware of: historical patterns around midterm elections point to a potentially difficult late September and October window, though markets have often recovered well in the months that follow once election results are clear.

Our response to that seasonal uncertainty is not to retreat from equities altogether, but to size positions more deliberately and reduce risk where our conviction is comparatively weaker, which is what this quarter’s adjustments are designed to do.

If you have questions about how any of this applies to your specific portfolio or financial plan, reach out to your advisor directly. If you do not yet have an advisor, our team is here to help you find the right fit.

Source

BlackRock, as of 9/22/2026. Views are subject to change. This information is provided for illustrative and educational purposes only and does not constitute personalized investment advice or a recommendation.

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