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The Fed raised rates today for the first time since July 2023. I’m Sam McClellan, and I’m here to tell you what the Fed’s decision and the current market backdrop could mean for your portfolio.

First, we don’t think today’s move marks the beginning of an aggressive hiking cycle. In fact, a Fed that demonstrates its commitment to bringing inflation back toward target could ultimately help contain inflation expectations and support longer-term bonds. During the press conference, Chair Warsh pointed to three developments behind the rate-hike decision: a wide set of data showing the economy has strengthened, summer inflation trends that, in his words, were not passing the test, and a shifted geopolitical backdrop.

Higher rates don’t necessarily mean a worse backdrop for equities. Rate volatility matters and strong corporate fundamentals can continue to support markets even as the macro dynamics become more challenging. U.S. equities are trading around 19 times forward earnings, roughly in line with their 10-year average, leaving us less concerned about a significant valuation reset than we would be in a more richly valued market.

Still, higher rates make us more selective. Within equities, we favor higher-quality companies, large caps and dividend payers, over more rate-sensitive small caps. And in fixed income, higher yields can create new opportunities for attractive income across select parts of the market.

The Fed isn’t the only source of uncertainty. Higher oil prices, geopolitical tensions, growing tail risks around the AI trade, and upcoming elections could all contribute to volatility.

That makes diversification especially important. 

We think investors should be deliberate about where their portfolio ballast comes from, rather than relying on duration alone to offset equity risk.

Source: U.S. equities represented by the S&P 500 Index, valuations from Bloomberg, as of Sept. 16, 2026. 10-year average P/E from Sept. 16, 2016, to Sept. 16, 2026.

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