It's Almost the 4th Quarter
The week was sort of good for stocks and tough for bonds. Last week, I discussed how the Federal Reserve tightened monetary policy.
A Look at the Market
The S&P 500 has returned 14.0% with dividends included, and the price is up 13.1% for SPDR S&P 500 ETF (SPY) in 2026 so far. This leaves the market on track to post a return for the full year right at 19%. At the same time, iShares Core US Aggregate Bond ETF (AGG) has declined in price in 2026. With dividends included, the return has been -2.2%, which is well below cash.
There are just three days left in September, and then Q4 begins. I grew up as a big football fan, so I can visualize each year for stocks like a football game for people trying to beat the market. I am trying to do better than the 60/40 index with my model portfolio, and I am headed into the last quarter with only a slight lead. I will write more about the month and quarter on Wednesday afternoon, but it's worth giving some thought now.
For the past couple of months, this weekly update has characterized where the S&P 500 will end up in terms of above or below 20%. I have been bearish for a while, and each year it has returned more than 20% since the down year in 2022. It's really not possible to make a high conviction forecast for 2026 in terms of better than or worse than 20%.
Some of the big themes this year have been the velocity and ascent of semiconductor stocks, the strength in energy stocks (and oil), the preference and then faded preference for small stocks over larger stocks and the rout in bonds. Of course, the hike by the Fed this month was a big surprise compared to expectations at the beginning of the year.
While smaller stocks were very strong early in the year, they have been much weaker than larger stocks recently. Here is the year-to-date action:
The Q3 action has been nasty for IWM and MDY compared to SPY:
Since the end of 2022, SPY has far outpaced MDY and IWM:
I plan to discuss the action in SPY by the 11 sectors when I review September and Q3 next week. So far, Energy has been very strong, while Utilities have been very weak. 5 other sectors have declined, and 4 other sectors have increased.
The market as measured by the S&P 500 is very close to an all-time high. It set an all-time high in August and can't be called anything but a bull market technically. Over the past two years, SPY has had two sharp corrections in the Spring of 2025 and the Spring of 2026. The big fears right now are with inflation and the massive federal debt, and inflation is alive and kicking. How the market ends the year will likely be very tied to any potential progress in Iran. The FOMC will meet again in late October and then in early December. It seems like the market is betting on another rate-hike, and this could play a role too.
ETF Model Portfolio Update
This ETF model portfolio, which is measured against 60% SPY and 40% AGG, is up relative to its benchmark. This week, I did one trade again, which was published on here instead of on my Seeking Alpha blog. For those who would like real-time alerts (free of charge for now), just subscribe to the blog.
I posted just one article on ETFs or stocks this week at Medium:
Going into the week, my model portfolio equity exposure totaled 49.7%, spread out across two ETFs. Here is what I did this week:
Monday: I added a new ETF back, ProShares S&P 500 Dividend Aristocrats ETF (NOBL), and I funded it with the sale of the rest of Vanguard Short-Term Inflation-Protected Securities ETF (VTIP) and a reduction of iShares TIPS Bond ETF (TIP).
Wednesday: I reduced NOBL and ProShares S&P MidCap 400 Dividend Aristocrats (REGL) and added to TIP and reestablished a position in Vanguard Short-Term Treasury Index ETF (VGSH).
Here is the current model portfolio, which now has 48.7% equity exposure in three ETFs and fixed income exposure in two TIPS ETFs and one regular Treasury ETF that total 51.0%:
I have been wrong this year, at least so far, as stocks keep rallying. The rally had been until Friday more than three months ago (June 5th), when stocks had their worst day of the year. Since then, the S&P 500 and the Russell 2000 have made new highs. Despite being underweight stocks all year, my return relative to the 60/40 index is higher by about 0.5% in almost 9 months. As the S&P 500 rose and the Aggregate Bond Index fell, the model portfolio, which was down a bit more, underperformed the index.
The year-to-date strong relative performance is not due to superior returns on my current equity ETFs. My TIPS ETFs have done reasonably okay relative to AGG, at least until very recently, but they aren't exactly boosting the return. So, what has it been? I have had positive returns from three ETFs, two of which I no longer hold and one of which is down a lot year-to-date that I just repurchased recently, and there has been some good trading.
How I Can Help You
I enjoy analyzing ETFs and stocks, and I like sharing my thinking in writing. I was considering starting a subscription service or joining one that is already being published. What things would you as an investor like to see offered?
If you are an investment professional, I would like to work with you as well. I can help educate financial consultants about the ETFs, and I can work with management at investment firms to help create model portfolios or potential ETF investments. Please let me know if your firm would be interested in this.
My ETF articles at Seeking Alpha, written under the alias The Intelligent ETF Investor, shared a lot of my ideas. I continue to share those ideas here on this blog.
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