September 2026 Commentary and Economic Outlook

SEPTEMBER 2026 EDITION:

Commentary and Economic Outlook

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• Economy

• Stock Market

• Bond Market

MARKET & ECONOMIC OUTLOOK WEBINAR

Be sure to register and attend our Monthly Market & Economic Outlook Webinar scheduled for Thursday, September 10th 2026 @ 1:30PM EDT. In the webinar, Jay Hatfield, Infrastructure Capital Advisors CEO and Portfolio Manager, will walk you through updated market commentary, and economic outlook for the coming months. SIGN UP!

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Economy:

• We forecast economic growth of 2.5% this year even if the Strait of Hormuz is not reopened.  The strong growth is driven by robust tech investment and a resilient consumer as gasoline consumption is now only 3% of consumer spending versus up to 8% during the 1970s. If the Strait is reopened and interest rates drop to the 4% area economic growth could accelerate into the 3% area as housing and construction recover from recession.

• ICA’s real-time market inflation, CPI-R, is tracking at 1.1% YoY vs Core CPI of 2.5% YoY. Core CPI Shelter is +3.14% vs InfraCap’s Realtime Shelter index showing +0.03% YoY.

  • Annualizing the trailing 3 months of Core CPI results in inflation of only 1.64%.

• The current Core PCE Price Index Y/Y of is likely to be revised down by up to 0.8% on September 30th from 3.3% to as low as 2.5% when the BEA reforms its methodology for estimating portfolio management and software inflation. Both estimates were deeply flawed as portfolio management fees were based on stock prices and software failed to correct for technology improvements.  In addition, over the last 3 months PCE inflation prints without financial services inflation would have been: 0.2%, 0.1% and 0.1%, which annualizes to a 1.6% rate of inflation.  If one corrects for the deeply flawed shelter component (see our calculation at infracapfunds.com) year over year Core PCE inflation would be approximately 2%.

•  The Fed should change their preferred inflation index to CPI from PCE. PCE inflation as reported is highly distorted.  Over 30% of the PCE index uses imputed prices vs. market prices, which creates massive distortions such as portfolio management services increasing 21% over the last 12 months.  In addition, the BEA imputes the cost of checking accounts without interest that shows an increase in the cost of checking accounts when interest rates rise.  Consequently, if the Fed raises interest rates, financial services inflation would rise and not fall.

  •  By including a large swath of consumption not paid by consumers, such as government and employer health care payments, the weighting of other services becomes distorted.  The net result is an index that does not reflect what consumers actually buy and more importantly an index that the Fed has less control over.  Shelter, which is the primary sector the Fed controls, is only approximately 15% of PCE vs. 35% of CPI, and healthcare, which is driven by secular factors vs. cyclical, is over 20% vs. only 10% in CPI.

Stock Market:

• Our base case S&P target is 8,250 (20x 2027 S&P EPS). Our target assumes the Strait does not open by year end and oil stays in the $80-100 range with the 10-year remaining in the 4.75% range is 8,100.  S&P earnings estimates continue to melt-up with the current estimate of $407 up 16% since the beginning of the year. Every 25 bp of 10-year yield impacts the theoretical equilibrium multiple by 1 point.  If the Strait reopens and oil drops below $70 with the 10-year dropping to the 4% area, our target rises to 9,000 which is 22X 2027 S&P earnings.

  •  We expect a stock market “Fall Stall” in the seasonally weak August/September time frame with the S&P range bound in the 7,500-7,800 area.

  •  We are not currently experiencing a stock price bubble, but rather an earnings estimate surge as the AI boom causes a dramatic increase in long term earnings estimates. 

•  On May 12th we launched the Infrastructure Capital Nasdaq Option Income ETF, QVOL. The objective of the fund is to seek high income and outperform the Nasdaq 100 on a total return basis by screening for reasonable valuations based on PEG ratios (Price Earnings ÷ Growth).  We seek to eliminate the “Dogs of the Daq”, which are overvalued companies such as Tesla, SpaceX, Comcast, Charter, KHC, Mondelez, WMT and Costco.

Bond Market:

• The 30-year bond yield has traded an average of 60bp over the 10-year treasury over the last 25 years (USYC1030).  Consequently, the 30-year trading in the 5.3% area vs. the 10-year is a normal spread.  Contrary to public dialogue, the 10-year treasury rate is driven almost exclusively by expected Fed policy with the 10-year averaging 100bp over the expected Fed Funds rate. The 10-year bond is currently pricing no Fed rate increases, which makes sense given recent cool CPI prints.  Strong corporate issuance is not a significant factor as construction and residential bond issuance is very muted as these sectors are in recession.  The US budget deficit has average 5.7% of GDP over the last 20 years and is expected to be 5.8% this year, which accounts for the wide spread of US bonds over countries like Germany (250 over) or Canada (100 over) but does not drive short term movements in treasury prices.

•  The data does not support a Fed rate increase in September. The current FOMC is highly motivated to raise rates in order to demonstrate independence from the Trump Administration, due to the fact the members believe in the fallacious “Expectations” theory of inflation and religiously believe in the arbitrary 2.0% target. They will not raise rates, however, as the inflation data does not support it.  Core CPI Y/Y has declined from 2.9% to 2.5% over the last 3 months and the last 3 months annualized rate is only 1.6%.  In addition, CPI Core corrected for the 2-year delayed shelter component is only 1.1% YoY (see https://www.infracapfunds.com/consumer-price-index-cpi-r).  In addition, the revised PCE data discussed above shows a similar deceleration. Finally, as noted above, the Fed’s hawkish stance has dramatically tightened financial conditions already, and the interest rate sensitive sectors of the US economy are in recession.

•  Warsh and the hawkish FOMC have tightened financial conditions dramatically.  Real 10-year interest rates (H15X10YR Index) have surged from 1.9% to 2.4% over the last four months, which represents a dramatic tightening of monetary policy.  The surge corresponds with an increase in market expectations of two rate hikes within the next year.  In addition, inflationary expectations  have plunged from a high of 3.4% to only 2.3% based on treasury implied inflation (ILBE US). The 10-year almost always trades at approximately 100 over the expected Fed Funds rate, which implies that the treasury market does not expect any rate increases as the 10-year bond has only risen 25bp over the last 4 months while the expected Fed Funds rate has risen 75bp (MIPR).

•  We are also hopeful that the Warsh task force will reform the price indices to reflect real-time market prices.  If that occurs, the revised indices will show that Core PCE is already below the Fed’s arbitrary 2% target.  We publish CPI-R, which is our estimate of real-time market inflation and it shows that inflation is already at the Fed’s target.

•  It is positive that Warsh recognizes that the Fed is fatally flawed and needs to reform 1) its forecasting models to include the money supply 2) It follows highly distorted and delayed price indices 3) The 2% target is completely arbitrary and clearly too low as the US has been more prosperous with inflation in the 3-4% range.

•  The US is headed toward deflation.  Historically inflation is only caused by excessive money supply growth and oil price spikes.  In the 70s oil prices rose 1,200% and the money supply grew at an average rate of 10% per year.  Right now, the money supply (Mo) is declining by over 10% per year and oil prices have declined by over 20% from recent highs.  If the Fed reforms its data feeds, it will cut rates aggressively to avoid the potential for disinflation.

DISCLOSURE

This information is not an offer to sell, or solicitation of an offer to buy any investment product, security, or services offered by Jay Hatfield, or Infrastructure Capital Advisors, LLC, (”ICA”) or its affiliates. ICA, will only conduct such solicitation of an offer to buy any investment product or service offered by ICA, if at all, by (1) purported definitive documentation (which will include disclosures relating to investment objective, policies, risk factors, fees, tax implications and relevant qualifications), (2) to qualified participants, if applicable, and (3) only in those jurisdictions where permitted by law. Jay Hatfield or ICA may have a beneficial long or short position in securities discussed either through stock ownership, options, or other derivatives; nonetheless, under no circumstances does any article or interview represent a recommendation to buy or sell these securities. This discussion is intended to provide insight into stocks and the market for entertainment and information purposes only and is not a solicitation of any kind. ICA buys and sells securities on behalf of its fund investors and may do so, before and after any particular article herein is published, with respect to the securities discussed in any article posted. ICA’s appraisal of a company (price target) is only one factor that affects its decision whether to buy or sell shares in that company. Other factors might include, but are not limited to, the presence of mandatory limits on individual positions, decisions regarding portfolio exposures, and general market conditions and liquidity needs. As such, there may not always be consistency between the views expressed here and ICA’s trading or holdings on behalf of its fund investors. There may be conflicts between the content posted or discussed and the interests of ICA. Please reach out to the ICA for more information. Investors should make their own decisions regarding any investments mentioned, and their prospects based on their independent research, and not on any subjective opinion(s) made either by ICA, ICA employees or affiliates. The information presented should not be construed as legal, tax or accounting advice or as a recommendation to invest in any of the products or strategies described, and may not be appropriate for individual investors. Such persons are urged to consult their own legal, tax and investment counsel before making any investment decision.This material must be preceded or accompanied by a prospectus. The information contained herein represents our subjective belief and opinions and should not be construed as investment, tax, legal, or financial advice. For a prospectus with this and other information about the Funds, please visit www.infracapfunds.com. Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. Please read the prospectus carefully before investing. For more information about the Funds, Fund strategies or Infrastructure Capital, please reach out to Craig Starr at 212-763-8336 (Craig.Starr@icmllc.com). The Funds are distributed either by Quasar Distributors, LLC or by VP Distributors, LLC, an affiliate of Virtus ETF Advisers, LLC. QVOL, ICAP, SCAP, and BNDS ETFs are distributed by Quasar Distributors LLC. PFFA, PFFR, and AMZA ETFs are distributed by VP Distributors, LLC an affiliated of Virtus ETF Advisers, LLC.