9-22-26: What’s Working and What’s Not in the Current Market Landscape

by Bryan Perry

September 22, 2026

A common question making the rounds these days is examining what market sectors are most likely to hold value and gain in the current market landscape of rising bond yields, a tighter Fed monetary policy, the ongoing war with Iran, soaring federal debt, rising oil prices, an AI backlash, and midterm elections!

While this set of conditions might, at first glance, seem like a toxic formula, let’s also include record sales and earnings for the S&P 500, giving investors a good reason to maintain a high level of confidence in how the market will trade during the fourth-quarter of 2026. Also, the AI boom is still booming, which translates into incredible gains in productivity – which are driving the current digital industrial revolution.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Record sales and earnings serve as the ultimate engine for stock prices over the long run, but macro conditions (such as yields, oil prices and fiscal policy) constantly wage a tug-of-war on P/E ratios. Macro conditions act as multipliers (or contractors) on earnings, determining how much investors are willing to pay for each dollar of corporate profit, and which sectors stand to keep those profits moving up.

In a macro environment characterized by rising yields, oil supply shocks, election uncertainty and a need for massive Treasury debt, capital typically rotates out of high-valuation growth assets into defensive, cash-flow-rich inflation-hedged sectors. This may explain why we’ve seen constant downward pressure on P/E ratios of companies with soaring sales but tepid profit growth, with many in the technology sector.

Coming to the end of Q3 and moving into Q4 next week, there are some standout pockets of strength within larger market sectors displaying strong relative strength and bullish fund flows, most of which address and benefit from uncertainty. Instead of fighting the tape, which happens when investors are complacent about their holdings, it pays to be proactive and lean into areas where tailwinds are stiff.

Take the war in Iran; integrated oil, exploration and production, pure-play refiners and shipping stocks are the leading sub-sectors of the energy sector, and for good reason. The ongoing conflict creates significant uncertainty across global markets. When multi-front geopolitical conflicts drag on, markets adjust by shifting focus from short-term panic to long-term structural supply-chain realignments.

Benchmark assessments from the Baltic Exchange confirm Very Large Crude Carrier (VLCC) spot rates on key routes from the Arabian Gulf to Asia have surged past $1.03 million to $1.2 million+ per day. To put this in perspective, typical pre-war baseline daily VLCC rates were between $25,000 and $45,000.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Rather than waiting for a definitive resolution, institutional capital generally reallocates toward tangible real assets, where supply disruptions are acute. Agriculture, industrial metals, and broad commodity baskets act as natural shock absorbers against geopolitically driven inflation the Fed cannot control.

In a protracted war scenario, high borrowing costs and elevated expenses compress profit margins for weaker firms. As such, institutional investors focus heavily on balance sheet quality. Companies with substantial cash flow rely less on debt, protecting them from high refinancing rates caused by heavy Treasury issuance. Hence, the recent rotation back into the Magnificent Seven to previous all-time highs.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The threat of AI getting into the wrong hands and creating havoc in information systems has put a bid under cybersecurity stocks. Whereas multiple former Wall Street-darling software stocks were crushed to multi-year lows, shares of leading cybersecurity companies are moving higher in a more dangerous world.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Lastly, the bunker mentality is leading money into healthcare, where big pharma, biopharma, pharmacy benefits and insurance companies are trading at all-time highs even as populist-socialist movements target this sector. But for now, without a clear-cut blueprint of how healthcare should be done at a national level, the biggest and best names that provide therapies, treatments, and services are in rally mode.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

What is not working is glaring. Luxury retail stocks are getting hammered, as are most broadline retail stocks, home improvement, home furnishing, automotive retail, and sporting goods. The divergence between strong headline macroeconomic data, such as August top-line retail sales surging 1.2% according to the U.S. Census Bureau and falling equity prices across retail stocks, is a classic market disconnect.

Official headline retail sales measure nominal spending, actual dollars spent, not volume in units sold. A significant portion of August’s jump was driven by a 3.1% surge in gas station receipts caused by rising crude prices and supply disruptions. When consumers spend $100 more at the pump to buy the exact same gallons of gas, headline retail sales go up, but consumer discretionary purchasing power suffers.

According to KPMG senior economists, part of August’s strength came from consumers buying auto parts, electronics, and goods up-front to get ahead of impending tariff increases and Middle East-driven energy price hikes.This pulls future sales forward rather than indicating sustainable consumer health.

Headline retail sales reflect what consumers spent last month, largely inflated by energy costs. Retail stock prices reflect what Wall Street expects retailers to profit next year. When sticky inflation and rising bond yields threaten future profit margins, stock prices fall even while headline sales reach record levels.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

There are other notable winning and losing sectors I could list, but these areas stand out the most, given the backdrop of all that is happening and which seems to matter most to market professionals.