State of Confusion

The markets had a difficult time in September with almost all stocks and bonds lower in price. Only a handful of tech stocks bucked the trend, so the Nasdaq 100 did much better. In this letter we will spend more time on the bond market and our expectations. Exhibit 1 shows the investment returns of various market measurements for the year-to-date ending September 30, 2026.

Ball of Confusion

That was the name of a Temptations song in 1970. The words to that song ring true today. Inflation, lack of world peace, lower-income groups having trouble and uncertainty about the U.S. government. Investors and people in general are more and more skeptical of the government and the people in it. Almost no one seems to be overseeing anything correctly, and spending is rampant. Notice Exhibit 2 showing people’s distrust with the top nine government institutions. It’s at an all-time low—and for good reason.

With both interest rates and costs moving higher, it has made people stop and think. Noticeable is the residential real estate market where buying even among rich people has slowed down. With elections coming and uncertainty, a lot of business is just on hold. One of our investors last week said if there were going to be a 51st state, it would be called … State of Confusion. Well said.

We Warned About Long-Term Bonds

For the last two years we’ve been saying that the long-term bonds, particularly U.S. Treasuries, were uninvestable. Wall Street and many financial planners kept buying the long-bond funds. When rates moved higher, the losses mounted. We want to give you a real-life example of what happened this year. Notice Exhibit 3 showing a bond that Oxbow owns and the 30-year U.S. Treasury.

Both of these were priced on November 26, 2025. Oxbow bought the two-year Treasury at 3.8%, which is down -1.37%, but we get coupon interest to cover that. Someone who bought the 30-year Treasury on the same day is down -13.17%. Their coupon interest won’t cover that loss. In times of rising inflation, we prefer to keep maturities less than 36 months, where we can always adjust to the higher rates.

All-time Low Returns for Bonds

Since 1793 the last 10 years’ return for bonds has been the very worst. In many ways it had to be because rates were so low for so long. The Federal Reserve and the U.S. government really hurt bond prices by showering money everywhere. When Janet Yellen, the Treasury secretary in 2020, had a chance to finance all the U.S. debt for 1.5%, it didn’t happen. Notice Exhibit 4 showing trailing 10-year returns.

If you own long-term bond funds, then you are at a deficit. The problem is it’s too far out to make a change. Most of the asset allocators just threw money into funds and assumed it would be fine. When things get this bad and sentiment this poor, it’s usually close to a change. This rate-increasing environment, in our opinion, stays for a while. But sooner more than later there will be a time to buy these. At Oxbow, this is what we’ll be monitoring. If you’re an optimist, look on the positive side for things to get better. But if they don’t, things will get nasty.

Camouflage Market

Webster’s dictionary defines camouflage as the act, means or result of obscuring things to deceive an enemy. That is what we’ve experienced in the stock market this year. Just about everyone is dismayed by their performance in September, even though the year looks good. That is why we say, “Don’t spend every waking hour looking at your account.” Notice Exhibit 5 showing results from the high.

Every single sector is well off their highs for the year. Energy has the best record but is still off some. Most investors can’t see this because the averages are not as bad. Why? Because 20 stocks are so big they carry the average. Look at Exhibit 6 showing this divergence.

For the month of September, 20 stocks offset the losing 480 in the S&P 500. Either you concentrate on the high flyers, or nothing happens. At Oxbow, we know that concentrated markets do not end well. When the tide turns, it is too little too late.

Where to Now?

There are many cross-currents this year in the market. Leadership has changed at least three times. We track total new lows and highs for the year on all stocks. For some time, we have been seeing more new lows for the year. David Rosenberg says this: “There were only two prior dates when the S&P 500 rallied to within 1% of a new high while more members hit new lows than highs: July 23, 1929, and December 21, 1999.” The latest for us was September 21, 2026—the third time.

This stock market is not what it seems. What we have seen from friends and some investors is that a small decline in September has them undone. I wonder what that looks like in a real bear market. We have said this for a long time: It has been too good too long and that is what people expect. At Oxbow, we have many short-term Treasuries—and even with that, accounts were off some.

The investing world, in our opinion, will get even tougher over the next 12 months. That is when experience will help out. In down markets, we have been off some, but nothing like the indexes. Depend on us to be vigilant during these times. We hope you have a great autumn.

Ted Oakley

Chance Finucane

“Concentration produces wealth. Diversification protects wealth.”

–James Clear

“Progress is impossible without change, and those who cannot change their minds cannot change anything.”

–George Bernard Shaw

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author, may differ from the views or opinions expressed by other areas of the firm and are only for general informational purposes as of the date indicated. The material contained herein has been prepared from sources and data we believe to be reliable but we make no guarantee as to its accuracy or completeness. This material is not intended to be relied upon as specific legal or tax advice or investment recommendations for any individual as the information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person. Investments involve risk and are not guaranteed.