Summer 2026 is already starting to feel like a memory. Kids are back in school, football is back, vacations have dwindled down, and the markets are settling into the stretch of the year that usually demands a bit more attention.
I also think this is a good time for investors to prepare for impact.
I don’t mean that as a prediction that the market is about to crash. I don’t know that, and neither does anybody else. September does have an uncomfortable history for investors and has historically been one of the weakest months of the year for the S&P 500, but a calendar is not an investment thesis.[1] Stocks do not have to decline simply because the month says September.
What interests me this year is everything happening at the same time. Long-term Treasury yields are approaching 5%. Inflation remains above the Federal Reserve’s target. Oil is above $100 a barrel. The federal debt recently crossed $40 trillion. The Fed has another decision coming this week, geopolitical risk remains elevated, and the November 3 midterm election is now less than two months away.[2]
At the same time, anyone who has remained invested in the stock market has generally had another good year.
That tension is what I want to talk about this week. There are plenty of reasons to remain constructive on the United States and plenty of reasons to be paying attention. Both can be true.
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State of Capital
Everything Is Up. So Why Does Everyone Feel Nervous?
Let’s start with what actually happened.
The S&P 500 closed Friday, September 11 at 7,656. The Nasdaq finished at 26,333, the Dow at 52,573 and the Russell 2000 at 2,903. Even after a difficult week, those indexes were still up approximately 11.9%, 13.3%, 9.4% and 17.0%, respectively, for the year.[3]
That is a good year.
If you have consistently contributed to a 401(k), IRA or brokerage account, there is a pretty good chance you have benefited from it. Corporate earnings have held up, technology investment remains enormous, particularly around artificial intelligence, and the economy has been more resilient than many people expected.
What makes the current environment interesting is that the stock market is doing well while several things underneath the market have become less comfortable.
Oil is one of them.
Brent crude finished Friday around $104.61 per barrel, up almost 9% for the week, after briefly trading close to $110.[4] The reason has largely been geopolitical and supply-related. Conflict across the Middle East has increased concern about energy infrastructure and shipping routes, including the Strait of Hormuz, one of the most important oil transit points in the world.
For an investor, rising oil can create winners. Energy companies can benefit from higher commodity prices, and the sector has been one of the strongest areas of the market this year.
For a family or a business owner, however, $100 oil is not simply an investment return.
Energy works its way through an economy. It affects gasoline and diesel, transportation, air travel, shipping, manufacturing and agriculture. A trucking company paying more for diesel has to absorb that cost somewhere. An airline paying more for fuel has the same problem. Eventually some of those costs can reach the customer.
That is why the inflation story is not finished.
Consumer prices rose 0.4% in August and were 3.4% higher than a year earlier. Core inflation, which removes food and energy, increased 0.3% for the month and 2.4% over the previous year.[5] The producer-price numbers released a day earlier were even hotter: final-demand prices increased 0.4% during August and 5.4% from a year ago, while producer energy prices jumped 4.2% in a single month.[6]
This is the part of investing that can feel counterintuitive. A strong economy is generally a good thing. Strong employment is generally a good thing. But when the Federal Reserve is trying to get inflation under control, economic strength can also give policymakers more room to keep interest rates high or raise them further.
The August employment report showed that the economy added 162,000 jobs and unemployment remained at 4.1%. Average hourly earnings were up 3.1% from a year earlier.[7] There is nothing in those numbers that says the labor market is collapsing.
Combine that with the latest inflation data and the market has changed its expectations for the Fed. By Friday, federal-funds futures were pricing roughly an 85% chance of a quarter-point rate increase at this week’s meeting.[8]
I am not interested in pretending I know exactly what the Fed is going to do on Wednesday.
What matters more is understanding why the conversation has changed. Earlier in the cycle, investors spent a lot of time asking how quickly interest rates could come down. Today we are once again discussing whether rates need to go higher.
That matters for almost every asset we own.
The Breakdown
Why the 10-Year Treasury Runs More of Your Life Than You Think
Most people can tell you whether the stock market had a good day. Far fewer people know what happened to the 10-year Treasury.
I would argue that the second number can have a much bigger impact on your everyday financial life.
When the federal government borrows money, it issues Treasury securities. A 10-year Treasury yield is essentially telling us the return investors require to lend money to the United States government for ten years. The price and yield move in opposite directions. If investors are willing to pay more for the bond, its yield falls. If they demand more return because of inflation, government borrowing, interest-rate expectations or other risks, prices can fall and yields rise.
On Friday, the 10-year Treasury yield briefly approached 5%, touching roughly 4.98% before settling around 4.93%.[9]
That may sound like something only bond traders should care about, but the Treasury market is the foundation underneath a huge portion of finance.
Think about it from a lender’s perspective. If the U.S. government can borrow for ten years at close to 5%, a bank making a mortgage loan to an individual household needs to earn more than that to compensate itself for credit risk, operating expenses, prepayment risk and a longer loan term.
That does not mean the 30-year mortgage rate equals the 10-year Treasury yield plus some permanent fixed number. The relationship is more complicated than that. But the 10-year Treasury is one of the important benchmarks influencing mortgage pricing.
Freddie Mac’s latest national survey showed the average 30-year fixed mortgage at 6.76%, up from 6.71% the week before and 6.35% a year ago.[10]
Now we can make this useful.
Imagine borrowing $500,000 for 30 years. At a 4% interest rate, the principal-and-interest payment is approximately $2,387 per month. At 6%, it is roughly $2,998. At 7%, it is approximately $3,327.
The house did not change. Your salary did not change. The kitchen did not get bigger.
The price of the money changed.
This is why I want people to become accustomed to asking two questions whenever they buy an expensive asset. The first question is what does it cost? The second question is what does it cost me to finance it?
Those are not the same question.
Institutional investors think this way constantly. If a real estate fund could borrow at 3.5% several years ago and that same debt now costs 6.5%, the investment committee cannot simply use its old assumptions and hope for the best. The required return on the equity changes. The amount of leverage that makes sense changes. The price the fund can afford to pay changes.
The same principle applies to buying a home, a car or a business.
The Treasury market is not something happening somewhere else.
It eventually shows up in your payment.
Property Playbook
How Institutional Real Estate Investors Actually Think About Core, Core-Plus, Value-Add and Opportunistic Investing
I want to spend a little more time on this section because these terms get thrown around online without people really explaining what they mean.
You will hear real estate investors describe properties as core, core-plus, value-add and opportunistic. Those labels are not simply descriptions of whether a building looks nice. At large investment firms, they are really shorthand for the risk in the business plan, the stability of the cash flow, the amount of execution required and the return investors should require for taking those risks.[11]
That last part is important.
A beautiful building can still be a terrible investment if you pay too much for it. An older property can be a tremendous investment if you buy it at the right basis and have a realistic plan for improving the cash flow.
Institutional investing begins with the business plan.
Core
A core property is usually a high-quality asset in a strong market with stable occupancy, quality tenants and relatively predictable cash flow. J.P. Morgan describes core real estate as high-quality, well-located properties that generally have stable long-term tenants.[12]
There usually is not a heroic turnaround story.
Imagine a modern apartment building that is 96% occupied in a strong market. The units are in good condition, management is functioning well and there is not a major renovation program required. You are primarily buying an existing stream of income.
The institutional question is therefore not, “How much can we fix?”
It is closer to, “How durable is this income, what price are we paying for it and how much leverage should we put against it?”
If the property produces $5 million of NOI and I purchase it for $100 million, I am entering at a 5% capitalization rate. Before I start building some complicated Excel model, that tells me something important. I paid twenty times the property’s current NOI.
From there, I want to understand lease expirations, tenant credit, capital expenditures, replacement cost, future supply and what would happen to my investment if cap rates were higher when I eventually sold it.
That is how a core discussion begins.
Core-Plus
Core-plus starts with a reasonably stable asset but introduces some additional work.
Maybe occupancy is 90% instead of 97%. Perhaps a handful of leases are rolling. Maybe the building needs a modest renovation, rents are somewhat below market or operating expenses are higher than comparable properties.
The important distinction is that the property already works.
You are trying to make a functioning asset better rather than save a broken asset.
An investment committee would want to know exactly where the additional return is supposed to come from. Are we raising rents? Leasing empty units? Reducing expenses? Refinancing the debt? Are we simply hoping cap rates fall?
Those are very different sources of return.
That leads us to value-add.
Value-Add
This is one of the most misunderstood phrases in real estate.
Value-add does not mean putting granite countertops in an apartment and posting a before-and-after video online.
The institutional definition is much more economic.
You are deploying capital and executing a business plan because you believe those actions can materially increase the cash flow and therefore the value of the asset. J.P. Morgan describes value-add investments as properties requiring meaningful operational improvements, renovations or lease-up activity designed to increase income and value.[13]
Suppose we acquire an apartment property for $10 million that generates $500,000 of annual net operating income.
Our going-in cap rate is:
$500,000 ÷ $10,000,000 = 5.0%
Now suppose we believe the property has several problems. Twenty percent of the units have not been renovated in twenty years. Rents are below comparable properties. Occupancy is only 88%. Operating expenses are too high because the property has been poorly managed.
We invest additional capital, renovate units as they turn over, improve management and increase occupancy.
Three years later, NOI has grown from $500,000 to $650,000.
If the market still values comparable properties at a 5% cap rate:
$650,000 ÷ 5% = $13 million
That is the basic value-add equation people usually teach.
But this is where an institutional investor keeps going.
What if cap rates increased while we were executing the plan?
If the exit cap rate is 6%, that same $650,000 of NOI is worth approximately $10.8 million.
Suddenly a business plan that appeared to create $3 million of value created substantially less.
Nothing went wrong with the renovations.
Nothing went wrong with leasing.
We hit our NOI target.
The capital markets changed.
This is why professional underwriting does not stop at:
VALUE = NOI ÷ CAP RATE
You have to stress both sides of that equation.
At an investment committee, I would want to see what happens if rents grow more slowly, renovations cost 15% more than expected, occupancy takes another year to stabilize, interest rates remain high and the exit cap rate is 50 or 100 basis points higher than originally assumed.
If the investment only works when every assumption goes right, we probably do not have enough margin for error.
That is much closer to how real estate gets discussed at large investment firms.
Opportunistic
Opportunistic investing sits farther out on the risk spectrum.
This can include ground-up development, major redevelopment, severely distressed assets, large vacancies, complicated conversions or situations where there is little current cash flow and most of the return depends upon successfully creating something that does not exist today.[14]
Consider buying an obsolete office building with the intention of converting it into apartments.
You may need zoning approvals. Construction financing. Architects. Contractors. Environmental work. New mechanical systems. A multi-year construction schedule. Leasing once the project is completed.
There are a lot more ways to be wrong.
That is why investors should demand a higher expected return.
It is not because somebody arbitrarily labeled the property “opportunistic.” It is because the range of potential outcomes is wider and more of the investment value depends on execution that has not happened yet.
That is the relationship I want people to remember: greater uncertainty should generally require greater expected compensation.
Class A, B and C Are Not the Same Thing
This is another place where people mix up terminology.
Class A, B and C generally describe characteristics of the physical property and its competitive position within a market. Core, core-plus, value-add and opportunistic describe the investment strategy.
Those concepts can overlap, but they are not interchangeable.
A Class A apartment building can become a value-add investment if it is poorly leased or mismanaged.
A Class B apartment complex can be a core-like investment if it has stable occupancy, predictable cash flow and requires little capital.
A Class C property is not automatically opportunistic.
The building tells me what I am buying.
The strategy tells me what I plan to do with it.
How I Want You to Look at a Real Estate Deal
When someone brings you a real estate investment, I would spend less time asking whether they call it “value-add” and more time trying to identify where the return actually comes from.
If the property is expected to produce a 15% return, ask what has to happen to generate that 15%.
How much comes from current cash flow? How much comes from rent growth? How much comes from renovation? How much depends on leverage? How much assumes the property can eventually be sold for a higher multiple of NOI than you paid?
Institutional investors refer to this as understanding the sources of return.
Then ask what can kill the deal.
What happens if interest rates stay high? What happens if a major tenant leaves? What happens if construction costs increase? What happens if your lender will only refinance 60% of the property instead of 70%? What happens if you have to hold the asset two years longer than expected?
This is the difference between looking at real estate and underwriting real estate.
The building matters.
The price matters.
The financing matters.
The business plan matters.
And the assumptions holding the entire thing together matter most of all.
Policy & Economics
$40 Trillion: Eventually the Math Matters
We first talked about the federal debt problem in Issue #2 of Invested in Us back in August 2025.
It has not gone away.
Gross federal debt crossed $40 trillion for the first time in August. At the time the threshold was crossed, approximately $32.3 trillion represented debt held by the public and roughly $7.8 trillion was intragovernmental debt.[15]
That distinction matters because gross federal debt and debt held by the public are not identical measurements.
But neither number eliminates the larger issue.
The federal government continues spending substantially more money than it collects.
CBO’s 2026 baseline projected approximately $7.4 trillion of federal outlays against $5.6 trillion of revenue, producing a deficit of approximately $1.9 trillion.[16]
And we now have actual numbers covering most of the fiscal year. CBO estimated that the deficit reached approximately $2 trillion through the first eleven months of fiscal 2026.[17] Treasury’s own August data put the fiscal-year-to-date deficit at about $1.97 trillion.[18]
I am always careful about comparing a sovereign government directly with a household because the analogy eventually breaks down. The United States issues the world’s dominant reserve currency, collects taxes, issues debt across a wide range of maturities and operates in the deepest government bond market in the world.
Your household cannot do those things.
But arithmetic still matters.
If the government runs persistent deficits, the Treasury has to finance them. Existing bonds also mature and need to be refinanced. As debt grows and interest rates remain elevated, interest expense consumes a larger portion of federal resources. CBO projects that rising net-interest costs will be one of the major drivers of growing deficits during the coming decade.[19]
That is where this becomes an investment issue rather than simply a political argument.
Treasury has to find buyers for enormous amounts of government debt. Corporations are borrowing too. Infrastructure projects need financing. AI data centers require enormous amounts of capital. Governments around the world are issuing debt.
Capital is not unlimited.
If investors require more compensation to provide it, yields rise.
Treasury recently expanded its program for buying back older, less-liquid long-dated Treasury securities. Beginning September 9, Treasury said it would at least double the maximum size of certain long-duration liquidity-support buybacks from $2 billion to at least $4 billion per operation.[20] On September 10, Treasury conducted a buyback of as much as $6 billion of 10- to 20-year bonds.[21]
It is important to understand what that program is and what it is not.
Treasury is not erasing the national debt.
The stated purpose is to improve liquidity and market functioning in portions of the Treasury market.[20]
And even with the expanded buyback program, the 10-year yield still approached 5% this week.[22]
That is the signal I care about as an investor.
The regularly scheduled federal general election is November 3, which means fiscal policy, taxes and spending will naturally be part of the national conversation.[23] Different policymakers and political parties will offer different approaches to deficits, taxes, spending and economic growth.
My job here is not to tell you which political answer to choose.
As investors, we should understand the financial consequences regardless of who is in office.
A country financing large deficits in a higher-rate environment can face higher interest costs. Higher Treasury yields can increase borrowing costs throughout the economy. Those higher required returns can eventually affect mortgages, corporate debt, commercial real estate and the price investors are willing to pay for financial assets.
That is not Republican math or Democratic math.
It is the cost of capital.
The Conversation
PREPARE FOR IMPACT
So where does that leave us?
I remain constructive on the long-term ability of American businesses to innovate, earn profits and create wealth. Employment remains strong. Technology continues moving at a remarkable pace. Investors who stayed invested have been rewarded again this year.
I am not selling everything because September has historically been uncomfortable.
But I am paying attention.
Stocks are up while the 10-year Treasury is flirting with 5%. Oil is above $100. Consumer inflation is 3.4%. Producer prices are rising faster. The federal government has more than $40 trillion of gross debt and the market is once again discussing another Federal Reserve rate increase.
Those things do not guarantee a market decline.
They change the range of possible outcomes.
For somebody building wealth through a 401(k), that probably does not mean trying to jump in and out of the market every week. Continue contributing. Keep your time horizon in perspective. Volatility is part of owning assets.
For somebody carrying credit-card or variable-rate debt, the message may be more immediate. A high-interest balance can destroy wealth much faster than most investments can create it.
For somebody buying a home, spend as much time understanding the financing as you do looking at the house. Even small differences in mortgage rates can translate into meaningful differences in monthly payments and lifetime interest costs. Freddie Mac specifically encourages borrowers to compare multiple mortgage quotes because doing so can potentially save thousands of dollars.[24]
For somebody buying investment real estate, stop underwriting deals around the assumption that rates have to fall. Run the deal at today’s financing cost. Then run it with worse financing, slower rent growth and a higher exit cap rate. If the investment still makes sense, now we have something worth discussing.
And for investors holding meaningful liquidity, remember that a higher-rate environment is not entirely bad news. Cash and high-quality fixed income can finally produce meaningful income, and difficult capital markets can eventually force highly leveraged owners to sell good assets.
That is why preparation and panic are two very different things.
Preparation means knowing what you own, understanding how much debt you carry and having enough liquidity that you are not forced to make bad decisions when markets become uncomfortable. It means continuing to invest when the long-term thesis has not changed while remaining patient enough to recognize that not every opportunity deserves your money.
It also means understanding something professional investors learn very quickly: a great asset and a great investment are not necessarily the same thing.
Price matters.
Financing matters.
Cash flow matters.
And sometimes the best opportunities appear precisely when the rest of the market is having difficulty dealing with those realities.
Summer is over.
The fourth quarter is coming.
Prepare for impact.
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