The CAISSA Quarterly Economic Update, September 30, 2026

Welcome to CAISSA’s Quarterly Considerations, where we’re going to talk about all the things that happened in the third quarter, as well as some year-to-date, and how that affected your portfolio here with CAISSA. So, in the next several minutes, we’re going to review what influenced financial markets through September.

How different investments responded to that, and what those developments mean when viewed from a long-term planning lens. Rather than trying to predict the next market move, our focus is going to remain on understanding risk. Maintaining diversification, and keeping investment decisions aligned with each client’s objectives. So we’ll jump right in to some of our market themes.

Interest rates moved sharply, pretty sharply higher during the third quarter, and it created some short-term losses for many bonds. But there is an important distinction between today’s price declines and the income that bonds may provide going forward.

Higher starting yields means investors are being paid more to hold that fixed income. And so this chart over here to the right really does illustrate this income cushion. Over a one-year period, it could… that income cushion, that new higher rate, could offset as much of the price pressure from a further rate increase of about 1 percentage point.

So, again, this illustration is an illustration and not a guarantee, but it helps explain why bonds may, again, play a meaningful role in diversified portfolios. Some of our market themes, and got fundamentals, profit margin, debt ratios to EBITDA, and we’ve got some midterms coming up.

So, even with those higher interest rates that we just talked about, the broader economy has shown some resilience. Corporate earnings, profit margins remain really strong. And that’s supported in part by artificial intelligence, AI, and while consumer spending has also held up quite nicely.

If… and you can see some of the debt-to-EBITDA ratios, these leverage ratios remain pretty muted despite some massive corporate debt issuance by some of these hyperscalers. Now, if we look at midterm elections, yes, we’re here, it’s coming up, it does add to market uncertainty, and history really does show that stocks have often performed just fine, and well after midterm elections.

So, although historical patterns, of course, we can’t say predict future results, our takeaway is to distinguish that temporary political noise, and we distinguish it from the fundamentals that really do matter over time. Rather than allowing an election calendar year to drive any of our portfolio decisions.

If we look at our asset class returns, it’s pretty obvious that there is a very big divergence that’s very clear here. We have fixed income pulling in now in the third quarter and negative results, and we have, stock markets still pulling in positive results, but each one of these little circles is the quarterly result, and you can see how muted those returns got.

And so, fixed income generally did struggle this last quarter as interest rates rose, and the longer-term bonds were hit the hardest. U.S. large cap, as represented here, posted a modest gain in the quarter, 1.8, while our smaller cap companies were down 7.2%, and they experienced a lot more pressure.

International stocks, results were pretty much mixed. And then we had real estate and some of these real assets coming in. Real estate declined because borrowing costs rose, while commodities were, you know, they still were that notable bright spot. Not driven largely by energy.

So, different investments responded very differently to the very same economic environment, and so it’s a reminder to us that diversification is not about holding everything that’s rising all at once, but about managing the reliance on any one source of return.

So if we think about fixed income and how that affected our CAISSA portfolio for fixed income and our portfolios. The rate curve. There were two really big developments that shaped our bond markets this quarter. First, Treasury yields moved very much higher. So, in June, it was about 4.5%, Fed hiked rates were up to about 5.3 on the 10-year now.

Secondly, corporate spreads and credit spreads widened particularly for the lower quality borrowers. Now, what is a corporate spread? It is the extra yield investments or investors’ demand for taking on that corporate credit risk instead of owning something like a government bond.

And so a wider spread suggests that there’s greater concern about borrowing from those corporations, and the ability of some of them to be able to pay you back. So, that environment, and you can see that this blue is the higher yield index, and the Gold here is the investment-grade corporate index, so that spread, when it goes a little bit wider, is what we’re talking about.

So, that environment really does reinforce why credit quality, maturity. interest rate sensitivity, they all matter when evaluating bonds. And so, how did CAISSA’s core fixed income allocation hold up? It is, our allocation is and continue to be, underweight duration, so that’s the length, that’s like a length or a maturity type of measure.

We’re underweight duration, and we have a lot less interest rate sensitivity because of that. And that was very beneficial this quarter, as interest rate volatility was very much elevated in light of the ongoing inflation concerns.

Another consistent theme across our managers was that we are focused on high credit quality across the entire portfolio. So with those yield spreads, you know, below their historical values. They did elevate with interest rates.

And our fixed income managers, though, do not feel the need to go reaching for those higher yields and those more riskier components and sectors of the market, but they can really feel like they can find attractive yields that are being issued with high-quality companies just like.

So, like many of our fixed-income managers, we have been looking to tax loss harvest, if we can, if we had any of those net asset values, or come down a little bit, we’re harvesting losses, and we’re taking some of those positions to offset a lot of the gains we took in our equity markets in the beginning of the year.

So let’s talk about those equities. Equity performance was pretty uneven beneath the surface. Large cap U.S. equities benefited from really strong earnings. Particular, some of that AI trade and those businesses. Energy stocks also gained as oil prices increased.

At the same time, those higher interest rates weighed really hard on the small, you know, U.S. companies, on sectors such as utilities and real estate. If you think about overseas, internationally, developed markets saw some modest gains, while those emerging markets were slightly negative. And that included some of the weakness in South Korea. As well.

So, the message here is that a broad index return can conceal very different experiences across company sizes, investment styles, sectors, and countries. So, how did CAISSA fare? Year-to-date, our equity categories are logging in similar 10-plus percent returns, but they’ve taken a lot… a variety of different paths in getting there.

So, our neutral allocation to large cap category has featured very steady performance, as strong corporate fundamentals, and the AI trade have allowed the largest of the companies in S&P 500 to help weather other macro events such, like, global geopolitics and interest rate volatility.

Then we had our overweight to small and mid-cap stocks, and that was more additive earlier in this year, but has somewhat reversed course as the higher perspective, interest rates have dented those… these companies, and they really do depend on access to debt and financing, so that really kind of put a damper on them.

Lastly, our underweight foreign stocks, which has, you know, really lessened over the course of the year due to strong performance, had a bit more beneficial aspect more recently, because Higher energy costs have been particularly challenging for energy importing companies, or countries like Europe, India, China. Recent dollar strength has also served as a recent headwind for U.S. investors.

Our emerging market managers also feel that, and they’ve noted the challenges of navigating some of those concentrations in their benchmarks and highlighted some, you know, something that you investors are aware of, and on the big S&P 500 type of indexes with the MAG7. So, that doesn’t happen as much in the Emerging Market Index, despite it being more heavily concentrated among those top three names.

Dynamic sleeve. This is some new introduction. We’ve always had low correlating assets or real assets, but now we have a… we’ve merged into a dynamic sleeve where we can take some assets from our stocks and some assets from our bonds and do something different. Because real assets provide, something different than a stock, different than a bond.

We have publicly traded REITs, there’s real assets, there’s energy, there’s a lot of things that are happening, commodities. In the Middle East, all of the geopolitical concerns in the Middle East is really funneling the energy and the price increases in energy, but there’s all sorts of other things that you can invest in that’s not a stock and a bond.

And so We have been investing in that in client portfolios that do have that local correlating or that dynamic sleeve, and we have really been into managed futures and some hedged, volatility exposure, and that has been, has really served as a helpful case study for its inclusion in our client portfolios.

Because traditional stock and bond categories, they were particularly volatile this quarter, given inflation and some of the geopolitical uncertainty that has come up. The dynamics leave, however, provided both returns. and diversification.

So, our managers were able to monetize this volatility during the quarter by taking bets on rising energy prices, they were taking bets on narrowing of spreads between the short and the long-term rates, and they’ve been selling some insurance type of contracts at these elevated prices.

So. because of some… being able to take some of those liens on… in some of those different sectors, our managed futures really was additive to our portfolio. And that really helped with positive return from this category for this quarter, and that diversification attributes, they really were on display, and it helped blunt some of the volatility and smooth returns.

So again, to try and wrap it up in a bow. all of this is a huge case for diversification. This is a lovely, colorful chart, but you can see that, investments that might be in the top in one year can move towards the bottom into the next year, and vice versa.

So, we really do want it to be diversified. We don’t want to be making bets on what was great last year to buy, you know, may not… may or may not be great this year. I do have a quick performance table that I’ll leave up here closely to you, but it really does… it just shows you quickly what the recent performance alongside a lot of longer-term results.

For the third quarter, the Bloomberg Ag, it declined about 3.5%. S&P was up about 2%. And for the third quarter anyways, and the broad commodities gained more than 16%. So, but if you take that and look at the 1, 3, and 5, and 10-year comms, they all tell very different stories.

So, we have to evaluate the portfolio, and we want to consider the results across all market cycles and take those risks, into consideration on how to achieve a well-rounded portfolio. We need our investments to work together in the pursuit of a longer term financial goals.

So, that really concludes what’s been going on in the markets, in short anyways, and how our CAISSA portfolios have reacted to that. So, I hope you got something out of it. We really do appreciate you, and thank you for taking some time out of your day to spend with CAISSA. We appreciate you all. Thank you.