September market insights

Fears of 'higher rates for longer' deal a blow to stocks and bonds

Article published: October 12, 2023

By: Neil Gilfedder, CFA® Chief Investment Officer

Markets fell in September with U.S. large-cap stocks (S&P 500) ending down 4.77% for the month and small caps (S&P 600) falling 6.00%. A broad measure of bonds, the Bloomberg U.S. Aggregate Bond Index, fell by 2.54%. Emerging-market stocks (MSCI Emerging Markets) declined 2.62% while developed-market international stocks (MSCI EAFE) dropped 3.42%.

Why it happened

The direction of interest rates drove the markets in September, as it has all year long, with the Federal Reserve at the wheel.

To contain rising inflation, the Fed began hiking interest rates in March 2022. Since then, the market has been parsing each month’s economic data for clues as to when the Fed may start to reverse course. But the economic data continues to be mixed, which has led to uncertainty about what the Fed may do and when. Data released in September showed that the labor market and consumer spending remained solid, while home sales and manufacturing data were weak. Inflation remained above the Fed’s targeted level, but it has been moderating this year.

When the Fed met in September, it chose not to raise rates, waiting to see the effects of its previous rate increases. However, it raised its projections for economic growth this year and forecast that rates might have to stay higher for longer in 2024, dealing the markets a blow as they had expected rates to start falling sooner. This sent bond and stock prices down. It’s noteworthy that at the end of the month, data showed that the Fed’s key inflation gauge rose less than expected, a sign that perhaps the Fed’s medicine is working. All told, however, the path of interest rates remains uncertain.

What it means for you

There have been a number of financial headlines about the possibility of interest rates being “higher for longer” following September’s Fed meeting. Remember that interest-rate levels rise and fall over time as the Fed seeks to keep inflation close to its 2% target.

It’s very hard to predict what interest rates will do – as evidenced by the market’s surprise at the Fed’s comments this month. That’s why we construct highly diversified portfolios in a way that seeks to achieve returns at appropriate risk levels over the long term, without timing the markets. If your circumstances and goals haven’t changed, nor should your investment strategy. We manage your portfolio to ensure it continues to align with your financial plan.

An index is a portfolio of specific securities (such as the S&P 500, Dow Jones Industrial Average and Nasdaq composite), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance does not guarantee future results.


Investing strategies, such as asset allocation, diversification or rebalancing, do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. All investments have inherent risks, including loss of principal. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Past performance does not guarantee future results.

Neil Gilfedder, CFA®

Chief Investment Officer

As executive vice president of investment management and chief investment officer, Neil oversees the team that manages investments for all Edelman Financial Engines clients. Neil directs the investment management operations and evolution of our proprietary investment methodology. Neil received a bachelor's degree in philosophy and economics from the University of York and a master's degree in economics from Stanford University.