Week Ending: September 25, 2026
Gravitational Pull
Composite Global PMI*, Current Versus 6-Month Change
*Purchasing Managers’ Index (PMI)
**Size of each point is scaled based on the share of nominal global GDP in U.S. dollars
This week, we traveled across Europe and fielded questions from European investors about geopolitics, U.S. politics, AI, U.S. fiscal concerns, inflation, and the U.S. dollar's status. Let’s take one of the hot-button issues: fiscal fears. No one is an apologist for the U.S. fiscal situation, but it’s far from a crisis. After all, when comparing net debt to GDP among G7 countries (which excludes intra-government debt holdings), the U.S. has a higher debt burden than Canada and Germany, but a lower one than France, Italy, and Japan. Aside from U.S. currency reserve status, the U.S. has something else: growth. The U.S. economy has grown 15.6% cumulatively since 2019, compared with Germany and France at just 2% and 6%, respectively. This week's S&P Global PMI release reinforces the point: the U.S. composite index posted the largest six-month gain of any major economy and now sits at the top of the pack, suggesting business sentiment is turning up as the AI investment boom broadens. Given that the U.S. federal government has rarely cut spending since the end of World War II, more economic growth, led by innovation, investment, new firm formation, and productivity, is the only way out of a fiscal problem.
Total Returns By Asset Class
Highlights of the Week:
High Yield: September's rate move has not affected the quality spectrum equally, as higher rates and tighter funding conditions weigh disproportionately on the most leveraged issuers. BB/B high-yield bond spreads are only 13 basis points (bps) wider on the month, while CCC high-yield bond spreads have widened by 80 bps. Active management is critical for navigating this bifurcation.
Municipals: LSEG Lipper reported $633 million of municipal fund inflows for the week ending September 23, partially reversing the prior week’s $1.8 billion outflow. The headline inflow masked a notable split: ETFs attracted $2.1 billion, while open-end funds lost $1.5 billion, pointing to tax-related activity. Year-to-date inflows now stand at $68.7 billion, the third-highest level on record for the comparable period, trailing only 2021 at $83.6 billion and 2019 at $69.7 billion.
Equities: The U.S. equity market moved modestly higher this week as strength in technology and AI-related stocks outweighed pressure from rising Treasury yields, elevated oil prices, and expectations for tighter monetary policy. Sector performance was mixed, with technology, communications, and health the best performers, while utilities, energy, and financials lagged.
Securitized Products: This week's commercial mortgage-backed securities (CMBS) market held firm, with spreads tightening across six new deals despite broader bond market volatility from rising Treasury yields. Issuance is running about 8% ahead of last year, with commercial real estate collateralized loan obligations (CLOs) steadily gaining share from conduit lending. A strong pipeline is lined up, including large student housing and hotel financings, plus Castlelake's debut CLO. Investors remain comfortable with the underlying property cash flows.
Disclosure: This material reflects the firm’s current opinion and is subject to change without notice. Sources for the material contained herein are deemed reliable but cannot be guaranteed.
