Inflection Points September 2026 US Final

Inflection Points: AI Monetization, Market Volatility, and Valuation Disconnects

Date: September 17, 2026 Topic: Macro, Investment Strategy

September is usually a tough month for the market with the S&P 500 averaging a 1.1% decline going back to 1928.1 Meaningful, though often short-lived, seasonal headwinds stem from an air pocket in fundamental data as investors await third-quarter earnings. Coinciding during this period is often cooling labor market data with the end of temporary college and tourist jobs.2 Election years tend to compound these drags amid uncertainty over legislative control and potential economic policy. Questions about the Federal Reserve’s willingness to make moves ahead of elections are another variable, though in 2026, the market seems prepared for a modest hike.3

What potentially makes this cycle distinct is the paradigm-shifting technology that is AI and expectations for monetization for the tech sector and beyond. We are still big believers in the automation revolution and the remaking of productivity and profitability in the coming years. That said, concerns about revenue and earnings combined with expenses and investment are weighing on markets heading into the fall.4 Recent headline-making statements from AI leaders calling for a slowdown in AI development are adding to mixed sentiment.5

A deeper look, however, suggests that the risk is not forecasted earnings growth but growing uncertainty and dispersion in expectations of winners and losers.6 One month, the market embraces hardware as the darling and eschews software, only to reverse the trade a few weeks later. In our view, this behavior is more about behavioral economics and sentiment than fundamentals, making short-term or tactical pullbacks potential opportunities to access some under-owned or unloved segments of the AI ecosystem.

Key Takeaways — AI investment and the resulting forecasts for revenue generation are a source of equity volatility even while helping to drive economic growth and corporate profitability. — Investors have been more discerning in recent months, attempting to reward AI winners and hold losers accountable, a dynamic that increases the outcome variance, even if median expectations are unchanged. — Perception is especially important as investors pull forward or push out growth expectations without aligning improvement or headwinds in near-term earnings with long-term growth forecasts.

Geopolitics and AI as Sources of Volatility Geopolitics can be a source of near-term volatility, but markets are typically quick to move past these headlines and refocus on fundamentals. For many investors, geopolitically induced volatility is a nuisance rather than a meaningful driver of, or risk to, long-term performance. This time, however, inflation expectations are in the crosshairs. Inflation’s two sides mirror the broad economy.7 Demand-side inflation stems from an overheating economy that grows too fast with ample liquidity. Supply-side inflation often arises from constraints that prevent products from reaching the market in sufficient quantities. While higher rates can temper exuberant demand, they do not directly relieve supply constraints, making supply-side inflation more challenging for central banks.8 Shelter is a prime example. Prior to the start of the Iran conflict in March 2026, shelter was the largest driver of U.S. inflation for more than two years.9 Higher rates do not help bring housing costs down; instead, they make house purchasing less affordable and push more people into the rental market, ultimately driving prices higher.10 Equities are not typically sensitive to long-duration rates.11 Higher rates affect the cost of capital, but markets tend to price that adjustment quickly and move on. Current conditions are an exception. In 2023 and 2024, the average correlation between the S&P 500 volatility and changes in the 10-year rate ran at a modest 0.3. Since then, that correlation has spiked to almost 0.7, suggesting that equity investors are concerned about inflation, supply challenges tied to conflict and trade, and the valuation impact.12

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