**For the Mad Men Meme… “unch’ed” means unchanged. My teen boys didn’t know this despite all their cool slang.**
A quick 10 points to frame today’s market environment:
Interest Rates. Higher and Higher (bad for risk assets, bad for traditional bond allocations). All traditional bond asset categories are down year to date for 2026.
Breadth. The average stock is down in recent weeks, index level performance is hiding real draw-downs because Large Cap Tech is carrying the entire S&P500 market.
Rising Rate Sensitive Equities are down the most in the last 30-45 days (REITS, Utilities, Consumer Discretionary, Financials, Small caps).
Broken Correlations. Rates, Gold, Energy, Equities, Geo-Political Risks…reaction functions are not behaving the same as they have in prior “market shocks”.
Volatility. Has been high at the stock level, but low at the index level. Bond volatility is very high. The sources of volatility are not fading away.
The market (stocks and bonds) is being re-priced for higher rates. This can take time, can’t be predicted. When the fed raised rates 500bps (from 0.5% FFR) in 2022, the S&P500 was down roughly 20% in a 12 month period. Bonds got smoked in 2022 as well, down 10-20% for the same general period.
Cash / Short-term Treasuries is opportunity (paid to wait w/ 4-5% Treasury yields) and reduces portfolio volatility (barbell treasuries + smart risk allocations).
The traditional 60/40 portfolio has been low return for 2026…the S&P 500 (large cap tech) is offsetting a disaster for this approach. Get creative…not crazy.
Looking forward…I worry about a low “real-return” environment.
Two very simple low return examples:
Don’t Kill Inflation: your portfolio is +10%, but inflation is 5%, real return = +5%.
Kill Inflation: your portfolio is -5%, purchasing power improves, real return = 0 to -5%.
Example A is the path of least resistance for the Washington DC types and is almost a certainty. Inflation will persist, rates can’t go much higher to tame inflation because the US Govt will basically go bankrupt. Trump is now on the record stating his plan to “inflate away the debt…”*
*Source:https://fortune.com/2026/10/02/trump-inflation-growth-national-debt-tariffs-ratio-balance/
10. Three prior WLA letters characterizing today’s market:
WLA - May 2026: It’s (AI)L For One:
https://westernlevel.com/commentary/its-ail-for-one
WLA - March 2026: Stocks Down, Bonds Down
https://westernlevel.com/commentary/stocks-down-bonds-down
WLA - June 2024: SPY -> Long Live The King
https://westernlevel.com/commentary/running-money-spy-gt-long-live-the-king
The Charts:
A great time to improve how and where you manage excess cash savings. Short-term rates over 4%.
So many advisory firms stuck with out of date asset allocation models...I see it all the time.
60/40 performance is entirely supported by the AI exposure in the S&P 500...
Rate sensitive equities REITs, Utilities and Small Caps as examples...down in recent months.
MAG 7, from laggard to leader in the "Bond crash of 2026" ...an unexpected reaction (AI build out any any cost).
Best,
Jon Fritzinger
Need help navigating this market? Just drop me an email to schedule a call.
jon@westernlevel.com
All above charts are "price only" and do not include distributions (income or dividends).
Not investment advice. Above performance figures are not representative of WLA client results, WLA client performance is based on different time periods among other factors. Actual client performance varies based on multiple factors including risk tolerance, when WLA was hired and when positions were established and the deduction of WLA ‘s management fees. WLA client holding period for the above examples varies, do not assume it’s the year to date period for any of the examples provided, it may be longer or shorter. Do not assume every WLA client holds every ETF example, client risk tolerance and when WLA was hired effects portfolio allocations. Read the disclosures on the ETF links provided. Performance listed is for illustration purposes only, not an endorsement to buy or sell. Do you own research and/or discuss with a professional investment advisor. Read full disclosures located in this email and at www.westernlevel.com.