An employee stock purchase plan (ESPP) is a workplace benefit that lets you buy your employer’s stock at a discount, using automatic payroll deductions. Many publicly traded companies offer one, yet ESPPs are often misunderstood.

The discount can provide a financial benefit. Owning more of your employer’s stock can also add risk, since the same company already pays your salary and may grant you other equity, so it is important to understand how your plan works.

How Does an ESPP Work?

Payroll deductions fund most ESPPs. You choose a percentage of your salary to set aside during an offering period, and your employer uses that money to buy company stock for you when the purchase date arrives.

Every plan is different. Your plan document spells out the key terms:

• Contribution limits
• Offering and purchase dates
• Discount percentages
• Withdrawal and termination rules
• Trading or blackout restrictions
• Holding requirements

Each of these terms can shape the right decision for you, so review them before you decide how much to contribute or when to sell.

How Do the ESPP Discount and Lookback Work?

Many qualified ESPPs offer a discount of up to 15%. Some also include a lookback provision, under which the purchase price is based on the lower of the stock price at the beginning or end of the offering period, with the discount applied to that lower price.

Consider an example (for illustrative purposes only):

• Offering-date stock price: $10
• Purchase-date stock price: $12
• ESPP discount: 15%

A lookback sets your price at $8.50, which is 15% below the $10 offering-date price, even though the stock is worth $12 when you buy it.

This structure can create a lower purchase price when the stock appreciates during the offering period.

What Is the ESPP Contribution Limit?

ESPPs are also subject to contribution limits. Qualified ESPPs generally operate within an annual IRS limit, and employers may impose additional restrictions such as:

• Maximum payroll contribution percentages
• Share limits
• Per-period caps
• Eligibility requirements

How Are ESPP Shares Taxed?

Taxation is one of the more complicated aspects of ESPPs. The treatment depends partly on when the shares are sold.

Disqualifying Disposition

Generally, a sale that occurs before meeting the applicable holding periods is considered a disqualifying disposition.

For qualified ESPPs, the relevant holding periods are generally:

• More than one year after the purchase date, and
• More than two years after the beginning of the offering period

If shares are sold shortly after purchase, a portion of the benefit is generally treated as ordinary income, with additional appreciation or depreciation treated as a capital gain or loss.

For some employees, selling soon after purchase can be attractive because it captures the ESPP discount while limiting continued exposure to the company’s stock price.

Qualifying Disposition

If the required holding periods are satisfied, the sale may qualify for different tax treatment, potentially allowing more of the gain to receive capital-gain treatment.

The calculation can become complicated, particularly when shares have appreciated significantly or an employee participates in multiple offering periods. Tax considerations should therefore be weighed against the investment risk of continuing to hold the stock.

Why Recordkeeping Matters

Good records become especially important when ESPP shares are transferred to another brokerage firm or held for many years.

Keep records of:

• Offering and purchase dates
• Purchase prices
• Prior W-2 reporting
• Historical tax information

Without these records, determining the correct tax treatment can be difficult and may create a risk of reporting income incorrectly.

What Is the Biggest Risk of an ESPP?

The biggest ESPP risk for most people is concentration: holding too much stock in the company that also employs you.

Your salary, bonus, RSUs, stock options, deferred compensation and career prospects already depend on how your employer performs.

Each ESPP share you keep increases that exposure. Your shares can also lose value after the purchase, even falling below the price you paid. If the company struggles, you could watch your investments fall just as your bonus shrinks or your role becomes uncertain.

Your overall portfolio and financial plan should guide how much employer stock you keep.

Executives face added hurdles. Blackout windows and trading restrictions can limit when you are able to sell, so a plan for your shares works best when you set it early.

Should ESPP Shares Be the First Equity You Sell?

Employees with several types of equity compensation need to decide which shares to sell first.

ESPP shares may be good candidates to sell first, since the discount gives an initial price advantage the day you buy. Selling them also gives you cash to fund other goals.

No single strategy fits everyone. Several factors shape the right approach:

• Liquidity needs
• Tax situation
• Existing employer-stock exposure
• Investment objectives
• Long-term financial goals

Should You Join Your Company’s ESPP?

Many employees will find a well-designed ESPP worth considering based on their individual circumstances. The discount alone can provide a financial benefit, and a lookback can further reduce the purchase price.

Your decision should weigh your plan’s rules and tax consequences alongside how much company stock you already own.

If your employer offers an ESPP, your Crestwood team can review the plan document and help you decide how it fits your broader financial strategy.

Contact Us.

 

Frequently Asked Questions

Should I sell ESPP shares right away?

Selling soon after purchase allows you to capture most of the ESPP discount while limiting your exposure to company stock. Holding the shares longer may offer additional tax benefits and allows you to participate in the potential upside of your employer’s stock. Before deciding which approach is right for you, contact your team at Crestwood to discuss how your ESPP fits into your broader financial plan.

What happens to my ESPP if I leave my job?

Most plans end your participation when you leave and refund any contributions not yet used to buy shares. Shares you already own stay yours, and your plan document has the details.

 

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This content is provided for educational and informational purposes only and is not intended as investment, tax, or legal advice. Crestwood Advisors does not provide legal or tax advice. You should consult with a qualified attorney or tax adviser regarding your specific circumstances.

Unlike the famous Jackie Wilson song,¹ it was not love, but a confluence of multiple forces that pushed bond yields “higher and higher” last month.

The Fed Delivers Its First Hike in Three Years

On September 16, the Federal Reserve voted 12 to 0 to raise the target range for the federal funds rate to 3.75% to 4%.² It was the first rate increase since July 2023 and ended a more than 2-year period where rates were unchanged. Federal Reserve Chair Kevin Warsh described the hike as removing “a dose of accommodation” and said in his press conference that “inflation is too high and has been for too long.”² The unanimity of the vote was notable. The three regional presidents who favored a hike in July, Beth Hammack, Neel Kashkari, and Lorie Logan, got the hike they publicly argued for, and the committee’s doves joined them. Chair Warsh declined to submit his own estimate in the Summary of Economic Projections, but the median year-end 2026 federal funds rate projection stood at 4.1%, which is consistent with one additional 25 basis point hike before year end, and 16 of 18 participating policymakers anticipate at least one more increase this year.

• August employment surprised to the upside: The Bureau of Labor Statistics reported nonfarm payrolls rose by 162,000 in August, well above the 53,000 consensus.³ July was revised up to a gain of 21,000 from a previously reported decline of 23,000. The unemployment rate held at 4.1%, and labor force participation rose to 61.6% from a five-year low of 61.4%.
• August Consumer Price Index (CPI) matched expectations but showed gasoline as an ongoing pressure: Headline CPI rose 0.4% month-over-month and 3.4% year-over-year, matching consensus and holding steady from July.⁴ Gasoline prices rose 3.9% during the month, accounting for more than one third of the headline increase, and energy overall rose 2.1%.⁴
• August PCE arrived with a methodology change: August Personal Consumption Expenditures (PCE) data, the Fed’s preferred metric for inflation, arrived two weeks after the Federal Open Market Committee (FOMC) hike. Core PCE, which excludes food and energy, rose 0.2% month-over-month and 3% year-over-year, well below the 3.3% consensus estimate.⁵ The headline number was shaped by an annual Bureau of Economic Analysis (BEA) update that applied new measurement methods to portfolio management fees, legal services, and computer software, retroactively back to 2021. July core PCE, originally reported at 3.3%, was revised down to 3.0% in the same release. Notably, economists at the Wall Street Journal estimated that roughly 0.2 percentage points of the apparent cooling reflected the methodology change rather than genuine price easing.⁵

 

Implications for Investors: The Fed is now tightening rather than easing, and the committee’s own projections anticipate at least one more hike before year end. Chair Warsh and most FOMC participants have characterized recent inflation readings as insufficient evidence of a durable improvement, so while the Fed may skip a hike in October, a hike in December is likely if inflation does not improve.

 

The 10-year Treasury yield reached an intraday high of 5.04% on September 15, the day before the FOMC decision, its highest level since July 2007, and then rose further to a session high of 5.27% by September 29.⁶ The 30-year Treasury yield touched 5.39% on September 15 and finished the month near its highest closing level in more than two decades. The move represents more than a reaction to the Fed decision. It reflects a convergence of forces that have been building and resets the cost of capital across the economy.

Four factors drove the long end higher:

• The Fed’s hike and the committee’s signal of more to come suggest the rate path is higher for longer.
• Oil prices tied to the ongoing Iran conflict kept inflation expectations elevated, with the one-month rolling correlation between crude oil prices and the 10-year yield reaching 0.96 according to BMO Capital Markets.⁶
• Heavy Treasury issuance tied to the federal deficit outpaced investor demand, requiring higher yields at auctions to attract buyers. Macquarie strategist Thierry Wizman identified bond issuance as a bigger driver this year than the inflation story itself.⁷
• Elevated capital spending by AI hyperscalers and their suppliers has driven corporate bond issuance higher, adding further supply to a market already working to absorb record Treasury issuance. Investors now have attractive buying opportunities beyond Treasuries, intensifying competition for capital.⁷

What are the effects of yields at these levels?

Mortgage rates and borrowing costs reset higher: The rise in Treasury yields quickly lifted borrowing costs for consumer and corporate borrowers. The 30-year mortgage rate exceeded 7% for the first time since early 2025, adding pressure to an already stretched housing market.⁸ Higher borrowing costs also hit rate-sensitive and dividend-oriented sectors, as Financials, Materials, REITs, Consumer Staples, and Utilities all fell between 5% and 7%. Notably, the only positive sector for the month was Technology, which rose 5%.⁹

After accounting for inflation, yields are now meaningfully higher: With the 10-year yield above 5% and core PCE around 3%, nominal yields now exceed current inflation by roughly 2% – the highest spread since before the global financial crisis. This is a materially different environment from the past 15 years, during which real yields were often negative or barely positive. Investors can now earn a return above inflation on high-quality intermediate and long-duration bonds, a condition that has not been durably true since 2007.⁶

Chair Warsh and other officials characterized market pricing as doing some of the Fed’s work: Chair Warsh addressed the long end move at his press conference, suggesting he views it as healthy that bond markets respond to economic data rather than Fed forward guidance.² New York Fed President Williams, who votes at every meeting, called another hike by year end “a reasonable expectation” on September 24 and linked higher Treasury yields to a strong underlying economy.¹⁰ Governor Lisa Cook said on September 28 that she expected “continued pressure on inflation from the AI build-out and from the pass-through of higher oil prices.”¹¹ The combined message from the committee is that the long end move is consistent with the policy stance, not something the Fed is working to correct.¹⁰, ¹¹

 

Implications for Investors: Bond yields at these levels are attractive on a historical basis, as investors have not had such an opportunity since before the global financial crisis. Intermediate maturity high-quality bonds now compete meaningfully with equities on an after-tax risk-adjusted basis. For taxable accounts in particular, the sharp moves in bond prices this year have created opportunities to harvest tax losses in existing bond positions and reposition portfolios at today’s higher yields, converting a mark-to-market loss into a durable improvement in future income. Investors with maturing bonds or new cash to invest should consider modestly extending duration while maintaining quality, since the opportunity to lock in current yields may not persist if growth weakens or inflation data continues to come in on the softer side.

 

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Returns of Market Indices  |  September 2026

Markets pulled back in September, partially giving up the August gains across indices. Global equities (MSCI ACWI) fell 1.4% for the month. U.S. large caps (S&P 500) held up comparatively well, down 0.7%, and emerging market equities (MSCI EM) were similarly resilient, declining 0.8%. The weakness was concentrated elsewhere, as developed international equities (MSCI EAFE) lost 3.4%, and U.S. small caps (Russell 2000) dropped the most at 5.8%. Fixed income offered no cushion, as the Bloomberg U.S. Aggregate declined 2.7%, falling alongside equities.

Source: Bloomberg. EAFE is MSCI EAFE Index, Emerging Markets is MSCI Emerging Markets and U.S. Bonds is Bloomberg U.S. Aggregate Bond Index. ACWI is the MSCI ACWI Index. Small Caps is the Russell 2000 Index. S&P 500 is the S&P 500 Index. The above information is as of 9/30/2026. Past performance is not indicative of future results.

 

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Sources

1. Jackie Wilson, “(Your Love Keeps Lifting Me) Higher and Higher,” written by Gary Jackson, Carl Smith, and Raynard Miner. Released on Brunswick Records, 1967. Worth adding to your playlists.
2. Federal Reserve, Transcript of Chairman Warsh’s Press Conference, September 16, 2026 (federalreserve.gov/mediacenter/files/FOMCpresconf20260916.pdf); Federal Reserve, FOMC Statement, September 16, 2026. FOMC voted 12-0 to raise the target range for the federal funds rate by 25 basis points to 3.75-4.00%, first increase since July 2023. Chair Warsh characterized the hike as removing “a dose of accommodation” and said “inflation is too high and has been for too long.” Chair Warsh declined to submit his own dot in the Summary of Economic Projections. The SEP median year-end 2026 federal funds rate projection stood at 4.1%; 16 of 18 participating policymakers anticipated at least one additional rate increase before the end of 2026.
3. U.S. Bureau of Labor Statistics, Employment Situation Summary, August 2026, released September 4, 2026 (bls.gov/news.release/empsit.htm). Total nonfarm payroll employment rose by 162,000 in August 2026 versus consensus of approximately 53,000 (Dow Jones). July 2026 payrolls revised up to +21,000 from a previously reported decline of 23,000. Combined June-July revisions +55,000 higher than previously reported. Unemployment rate unchanged at 4.1%. Labor force participation rate rose to 61.6% from 61.4% in July.
4. U.S. Bureau of Labor Statistics, Consumer Price Index Summary, August 2026, released September 11, 2026 (bls.gov/news.release/cpi.htm). Headline CPI rose 0.4% month-over-month seasonally adjusted and 3.4% year-over-year, unchanged from July. Core CPI rose 0.3% month-over-month and 2.4% year-over-year, down from 2.5% in July. Gasoline index rose 3.9% in August, accounting for more than one third of the headline increase. Energy index rose 2.1% month-over-month.
5. U.S. Bureau of Economic Analysis, Personal Income and Outlays, August 2026, released September 30, 2026 (BEA 26-43). Headline PCE rose 0.3% month-over-month and 3.4% year-over-year. Core PCE rose 0.2% month-over-month and 3.0% year-over-year, below consensus estimate of 3.3%. The release incorporated an annual BEA methodology update applying revised measurement methods to portfolio management fees, legal services, and computer software, retroactively applied to 2021. July 2026 core PCE revised down to 3.0% from an originally reported 3.3%. CNBC, “Fed’s preferred gauge showed core inflation at 3.0% in August, much lighter than expected,” September 30, 2026 (cnbc.com) referencing Wall Street Journal estimate that approximately 0.2 percentage points of the apparent cooling reflected the methodology change.
6. Bloomberg, “US 10-Year Yield Rises to Highest Since 2007 as Fed Looms,” September 15, 2026 (bloomberg.com); CNBC, “10-year Treasury yield hits highest level since 2007 as traders bet a Fed rate hike is coming,” September 15, 2026 (cnbc.com). 10-year Treasury yield reached 5.04% on September 15, 2026, highest level since July 2007. 30-year Treasury yield touched 5.39% on September 15. CNBC, “10-year Treasury yield is at its highest in 19 years. How we got here,” September 26, 2026. 10-year yield reached 5.23% intraday on September 25. 24/7 Wall Street, September 29, 2026, citing ING data: 10-year intraday high of 5.274% on September 29; 30-year closed at 5.56%; 20-year at 5.60%. One-month rolling correlation between front-month WTI crude and the 10-year Treasury yield at 0.96 per BMO Capital Markets.
7. CNBC, “10-year Treasury yield is at its highest in 19 years. How we got here,” September 26, 2026 (cnbc.com). Macquarie strategist Thierry Wizman cited bond issuance as a larger driver of the 2026 yield move than the inflation story. Capital spending plans of hyperscalers and their suppliers cited as a factor keeping corporate bond issuance elevated through 2026 and into 2027.
8. CNN Business, “Bond market bust: A key rate just blew through another decades-old record,” October 1, 2026 (cnn.com). 30-year mortgage rate topped 7% for the first time since early 2025 during late September 2026.
9. Investrade, Market Review: September 30, 2026 (investrade.com). S&P 500 sector returns for September 2026: Technology sector (XLK) approximately +5%; Financials (XLF), Materials (XLB), and REITs (XLRE) approximately -7%; Consumer Staples (XLP) approximately -5%; Utilities (XLU) approximately -6%; Consumer Discretionary (XLY) approximately -6%. S&P 500 approximately -0.4% for the month; Dow Jones Industrial Average approximately -4.3%; Nasdaq Composite approximately +1.9%; Russell 2000 approximately -5% through September 30, 2026.
10. Reuters via Investing.com, Williams speech reporting, September 24, 2026. New York Fed President and FOMC Vice Chair John Williams called another rate hike by year end “a reasonable expectation” on September 24, 2026. Williams linked higher Treasury yields to a strong underlying economy in prior comments on September 2, 2026 (CNBC).
11. Federal Reserve Governor Lisa Cook, remarks of September 28, 2026, as cited in 24/7 Wall Street, September 29, 2026. Governor Cook stated she expected “continued pressure on inflation from the AI build-out and from the pass-through of higher oil prices.”

Picture a 100th birthday party. The toast comes from the guest of honor’s son, who is 74 and a few years into his own retirement. Four generations crowd into the family photo, and the youngest guest is not yet walking.

Scenes like this one are becoming increasingly common. The number of Americans who reach 100 is projected to climb sharply in the coming decades. Research has long linked higher income to longer life expectancy, and more than nine in 10 wealthy Americans surveyed by Bank of America this year said longer life expectancy is an important consideration in their planning.¹

A longer life is a gift. It also changes how we think about work, health, money and family.

 

The second act gets longer

Someone who retires at 62 today could reasonably spend 35 years or more in retirement, which is longer than many careers.

These years don’t have to look like a “traditional” retirement. A former executive could decide to launch a company at 67, or a business owner who sold at 60 may join a nonprofit board, mentor the next generation or buy a small farm in Upstate New York.

A longer life creates room for more chapters.

Health becomes the first asset

The extra years only feel like a gift when they are healthy ones. Researchers refer to this as health span, the number of years a person lives in good health.

For families with significant resources, health span is increasingly becoming an area of investment, from preventive care and comprehensive annual physicals to trainers focused on strength, mobility and balance.

The trend is showing up in real estate, too. Sotheby’s International Realty identified longevity as a breakout trend in luxury real estate this year, with ultra-wealthy buyers seeking wellness focused features and homes designed to support aging in place.²

Four generations at the table

Longevity reshapes retirement, but it also changes how families think about inheritance.

When parents live to 100, their children may not inherit until their 70s, long after the years when that support could have mattered most for a first home, growing family or other major milestones.

This is leading more families to rethink the traditional model of passing down wealth only after death. Family wealth today might instead support education expenses, a down payment, or a family trip that brings everyone together and creates memories across generations.

It can also mean bringing adult children into conversations about the family’s plans earlier, while there is time to answer questions, share values and make decisions together.

Living longer gives wealth more time to be useful, not just more time to last.  It creates more years to pursue what matters, invest in your health, help the people you love and enjoy the life you’ve built.

Planning for a long life is ultimately about making the most of those years.  Our team helps clients think through what they want the next several decades to look like and how their wealth can support it.

 

Sources:

[1] Bank of America Private Bank. 2026 Study of Wealthy Americans. Available at: 2026 Bank of America Private Bank Study of Wealthy Americans. Accessed September 2026.

[2] Sotheby’s International Realty. Longevity Is The New Luxury: The Defining Force Driving High-Net-Worth Homebuyers In 2026. Available at: Sotheby’s International Realty 2026 Mid-Year Luxury Outlook. Accessed September 2026.

Key Takeaways:

• Clients over age 59½ who take IRA distributions may be able to reduce or eliminate the need for quarterly estimated tax payments by increasing withholding on those distributions.
• The IRS treats IRA withholding as if it were paid evenly throughout the year, even if the transaction happens once, in December.
• This treatment can help avoid missed deadlines and remove the need to sell taxable assets to raise cash for the IRS.
• The strategy works best for clients already subject to Required Minimum Distributions.
• Coordination with a client’s accountant is crucial to avoid under or overpayment.

If you are self-employed, own a business, or have meaningful investment income, you are likely accustomed to paying quarterly estimated taxes. Many clients mail checks to the IRS for tax payment. While the IRS is still accepting paper checks, they are strongly encouraging the transition to electronic payments,

These tax payments can be tedious as they call for four calculations, payments, and deadlines each year. For clients who are already taking distributions from an IRA, there is often a simpler way. Having taxes withheld directly from your IRA distributions can replace some or all of your estimated payments.

Here’s how it works, when it makes sense and what to watch out for:

Who needs to pay estimated taxes?

The United States operates on a “pay-as-you-go” tax system. If you are a W-2 employee, your employer handles this automatically by withholding taxes from your paycheck. However, if you are a business owner, self-employed, or receive income that does not have taxes already withheld, you become responsible for making the payment to the IRS.

Generally, if you anticipate owing more than $1,000 in federal taxes for the year after accounting for any tax withholdings made throughout the year, then you are expected to make quarterly estimated payments.

What is the IRS Safe Harbor Rule for estimated taxes?

It can be difficult to accurately pay taxes throughout the year, especially if your income fluctuates as it may feel like shooting at a moving target. Fortunately, the IRS provides a Safe Harbor Rule which if conditions are met, can protect you from potential underpayment penalties. Your safe harbor payment options can vary depending on whether your prior year’s adjusted gross income (AGI) is above or below $150,000. This $150,000 threshold applies to both single filers and married couples filing jointly. For married couples filing separately, it is $75,000.

If your prior year’s AGI was $150,000 or less, you can generally avoid an underpayment penalty by paying either:

• 90% of what you owe for the current year, or
• 100% of what you owed last year

If your prior year’s AGI was above $150,000, you can generally avoid an underpayment penalty by paying either:

• 90% of what you owe for the current year, or
• 110% of what you owed last year

In practice, it is typically easier to satisfy the prior-year safe harbor requirement (100% or 110%) as it is based on a known and finalized figure from last year’s tax return. Solving for 90% of the current year requires projecting out your income through the end of the year, demanding precision and ongoing monitoring throughout the year.

What are advantages of withholding from an IRA?

One of the unique benefits of withholding taxes from an IRA is that the IRS treats taxes withheld from a retirement account as if they were paid evenly throughout the year, regardless of when the withholding occurred. This means that a single withholding in December is treated as a quarter of it was paid in each period.

This differs from estimated taxes as the payment is credited on the date it is received. If you skip the April and June installments and make a larger catch-up payment in December, the IRS views this as two late quarters and can assess an underpayment penalty.

This provides several benefits for clients who are over age 59 ½ and are distributing from their IRA.

Simplified Tax Management: Rather than calculating and submitting four payments, your custodian sends the money directly to the IRS. This eliminates the need to mail checks or log into an online portal to pay.

Year-End Safety Net: If you reach the last few months of the year and realize your income ran well ahead of projections, or that you simply missed a quarter, a larger year-end IRA withholding can retroactively cover the shortfall and eliminate a penalty that an equivalent estimated payment would not cover.

Liquidity in taxable accounts: Writing estimated tax checks throughout the year means keeping cash in hand, and potentially triggering capital gains to raise cash. If you are subject to Required Minimum Distributions (RMDs), you can withhold taxes on these distributions that are required to be withdrawn anyways.

What should I consider before switching to IRA withholding?

This approach is not right for everyone, and it is important to discuss these details with your tax advisor.

It works best if you are already taking distributions. The strategy is most natural for clients that are subject to (RMDs) or who are otherwise drawing from retirement accounts to fund their spending.

Withheld amounts are still taxable income. Money withheld for taxes counts as part of your gross IRA distribution. If you need $10,000 withheld, that $10,000 comes out of the IRA and is included in your ordinary income for the year.

Age matters. IRA distributions before age 59½ are generally subject to the 10% early withdrawal penalty. This strategy is primarily for clients beyond this threshold.

Look at your other income sources. If your pension or Social Security benefits have insufficient tax withholding, adjusting the withholding on your IRA distribution can absorb the gap and may eliminate the need for estimated payments altogether.

Monthly distributions need a slightly different approach. If you take your RMD in monthly or periodic installments, we generally recommend withholding taxes throughout the year and reserving December (or your last distribution in the calendar year) for smaller withholding adjustments if needed.  By this point in the year, most of your RMD has likely been satisfied already. Because the gross distribution is taxable whether paid directly to you or withheld for taxes, withholding levels should be coordinated carefully with your broader tax and cash-flow needs.

Roth conversions add a wrinkle. If you are subject to RMDs, the RMD must be satisfied before any Roth conversion. If your RMD is $100,000, only distributions beyond that $100,000 can be converted. That said, you can increase the withholding on the RMD portion to cover the taxes generated by the conversion.

Why is communication so important here?

Whatever approach you take, everyone involved needs to be on the same page. If you have already made estimated payments and then add withholding on top, you may substantially overpay. If your accountant is unaware that withholding is now covering your obligation, they may continue to prepare quarterly vouchers.

We coordinate directly with clients’ accountants throughout the year, sharing year-to-date investment income, realized gains, and withholding figures so that the plan holds together and you avoid any surprises at tax time.

Wondering whether this makes sense for your situation? Reach out to your Client Service Team. We can review your prior-year safe harbor figures, look at what is already being withheld from other income sources, and determine whether shifting from estimated tax payments to IRA withholding is a suitable method for you.

Contact Us

 

This material is provided for informational and educational purposes only and should not be construed as tax or legal advice. The concepts discussed may not be appropriate for all individuals and are based on current federal tax laws, which are subject to change. Any examples provided are for illustrative purposes only and are not intended to predict or guarantee any particular outcome. For legal advice, consult with a licensed attorney. For tax advice, consult with your tax adviser.

 

 

 

Q2 Earnings Wrap: A Very Strong Quarter, With a Very Familiar Caveat

The Q2 earnings season closed with the S&P 500 posting a blended year-over-year earnings growth rate of 52%, the highest quarterly reading since Q4 2020.¹ Revenue grew 15.5%, the fastest pace since Q4 2021, while the 17% net profit margin was the highest FactSet has ever recorded for a full quarter.

• The concentration story is now more measurable than ever: Alphabet’s Q2 earnings included a $98 billion mark-to-market gain on equity securities driven primarily by its stakes in SpaceX and Anthropic. Amazon’s GAAP earnings included a separate $53.4 billion gain on equity securities, primarily its investment in Anthropic. Excluding Alphabet alone, the blended growth rate falls from 52% to 40.6%. Excluding both, it falls to 33.8%. The gains are real accounting entries even though no shares changed hands.¹
• The Hearty 493: The Magnificent Seven reported blended earnings growth of 118.5% for Q2, the highest since Q4 2020. An equally noteworthy figure is the other 493 companies in the index grew earnings at 31.8%.¹
• Guidance for the back half remains strong: Analysts expect double-digit growth to continue and currently project Q3 2026 earnings growth of 28.2% and Q4 growth of 25.8%. Full-year 2026 earnings are projected to grow 31.2%, with 2027 projected at 14.4%. The forward 12-month P/E ratio stands at 19.6, below the 5-year average of 19.9 but above the 10-year average of 19.0.¹

Implications for Investors: Q2 earnings results were enormous. While Q2 results for Magnificent 7 were outsized, the earnings growth excluding those stocks is a healthy signal that strength is not confined to a handful of mega-cap tech stocks.

The Warsh Fed Signals It Is More Willing to Hike Than to Cut

On August 28, Chair Warsh delivered his first Jackson Hole address, marking his 100th day at the Federal Reserve.² The speech, titled “In Our Time,” walked through his approach to monetary policy and closed with a section on current conditions. In that closing section, Chair Warsh said, “I would be hard pressed to describe broad financial conditions as restrictive.”² He added that while summer inflation readings were better than expected, they “do not tell me that underlying inflation trends have meaningfully improved.”² He restated the 2% PCE inflation target as a firm objective and observed that “price stability is not self-executing, nor is inflation necessarily mean-reverting.”² Markets took the address as leaning toward higher rates for longer. The 30-year Treasury yield closed the following week at approximately 5.25%, near multi-decade highs, and bond markets began pricing higher rates as a more likely probability.

Three regional Fed presidents are now publicly advocating for a hike: Cleveland’s Beth Hammack, Minneapolis’s Neel Kashkari, and Dallas’s Lorie Logan each dissented at the July 29 meeting in favor of a 0.25% hike, and each has since made the case publicly. Hammack said, “Now is the time for the FOMC to act to speed the return of PCE inflation to our 2% objective.”³ Kashkari argued for a series of small hikes rather than waiting: “A potential series of small policy moves would be better than waiting and eventually concluding that even bolder actions were necessary.”⁴ Logan said, “Without any policy restraint, inflation will likely continue to trend above target until there is an unanticipated shock,” adding that “the FOMC cannot count on unanticipated shocks to achieve its goals.”³ Richmond Fed President Tom Barkin called the case for adding restraint “a strong case.”³

Other Macro Developments

• July payrolls fell for the first time in the cycle: The Bureau of Labor Statistics reported that nonfarm payrolls declined by 23,000 in July, well below a consensus estimate for an 83,000 gain.⁵ May and June payrolls were also revised sharply lower. The two months combined were 103,000 lower than previously reported. The unemployment rate ticked down to 4.1% from 4.2%, though the decline was driven by lower labor force participation rather than employment strength.⁵
• Inflation split by measure in July: The BLS reported on August 12 that July headline CPI rose 0.1% month-over-month and 3.4% year-over-year, cooler than June’s 3.5% year-over-year figure.⁶ Two weeks later July PCE, the Fed’s preferred inflation gauge, showed the opposite pattern: core PCE rose 0.2% month-over-month with the year-over-year rate unchanged at 3.3%.⁷ Core PCE has now been in the range of 3.3% to 3.4% for four consecutive months. This is the reading Chair Warsh referenced when he said that summer inflation data did not indicate meaningful improvement in underlying trends.⁷
• Oil returned to the top of the risk ledger: Brent crude closed August above $90 per barrel following renewed U.S. and Iran hostilities that culminated in a U.S. strike on Iranian mine positions at Larak Island on August 30.⁸ Energy inflation was a modest driver of the July CPI data improving, since gasoline prices fell during the month, but the August oil rally is very likely to reverse that effect.⁸

Implications for Investors: The FOMC now faces a policy choice where each side of the dual mandate – maximum employment and price stability – is pulling in opposite directions. Chair Warsh’s Jackson Hole address materially raised the probability that the next rate move is a hike rather than a cut, and market pricing shifted accordingly during the final week of August.  With labor market conditions beginning to soften while core inflation remains elevated and rising oil prices present another inflation risk, uncertainty around the Fed’s next move is likely to persist. Longer-term bonds have already repriced to reflect higher interest rate expectations, strengthening the case for favoring shorter maturity and higher quality bonds.

The Cost of Waiting Has Two Sides

Behind every FOMC decision to hold rates steady is a judgment about which mistake is more costly: cutting too early and letting inflation reaccelerate or waiting too long and allowing the labor market to weaken further.

The record from the past sixty years suggests the character of the mistake depends heavily on which data the Fed anchors to at the moment of decision.

• The Burns Fed cut too early and paid for it for a decade: The most cited cautionary tale, and the one Kashkari’s dissent explicitly invoked, is the Burns Federal Reserve of the 1970s. Chairman Arthur Burns raised rates in 1972 to 1974 as inflation climbed above 6%, then reversed course and cut in 1975 as the economy fell into recession following the first oil shock. Inflation, which had briefly fallen below 5%, rebounded sharply and reached above 11% by 1979.⁹ Volcker, who took the chair in August 1979, ultimately had to push the federal funds rate to a peak of 20% in June 1981 to break the wage-price expectation loop that had become entrenched with Burns. The direct cost was a double-dip recession in 1980 and 1981 to 1982, with unemployment reaching 10.8% in November 1982. The lesson, cited in Kashkari’s public statement, is that a Fed which cuts too early to protect employment can be forced to raise more late⁹
• The Bernanke Fed of 2007 to 2008 waited to cut and paid a different price: After raising rates 17 times from 2004-2006, the Fed held them at 5.25% into 2007, despite mounting stress in mortgage markets.¹⁰ The first cut came in September 2007, and by the time the Fed had cut aggressively into early 2008, the credit crisis had already advanced. The Fed paused from April to October 2008 amid inflation concerns, only to be forced back into aggressive cuts as the global financial crisis deepened. Peak-to-trough employment losses reached 8.7 million by early 2010, and unemployment reached 10% in October 2009. The 2008 pause is regarded by many economists as an example of a Fed that mistook a temporary energy-price spike for a durable inflation problem and paid for that mistake with a deeper recession than was necessary.¹⁰
• Greenspan in 1994 to 1995 achieved the only clean soft landing: The lone example of a Fed that navigated a similar policy tension without a recession is the Greenspan Federal Reserve of 1994 to 1995. Chairman Alan Greenspan raised the federal funds rate from 3% to 6% between February 1994 and February 1995 to head off an incipient inflation acceleration, then paused for six months as data softened, then cut only 0.75% over the balance of 1995 and 1996 as inflation stayed contained and the labor market held. The 1994 to 1995 sequence remains the only clear soft landing in the post-1980 record; every other easing cycle in the modern era has either preceded or coincided with a recession.¹¹ Two features made it possible: inflation expectations remained anchored throughout, and the Fed acted before the labor market had begun to visibly weaken. The current environment lacks the first condition and is closer to a live test of the second.¹¹

Implications for Investors: History highlights that both errors, cutting too early and waiting too long, carry real costs. Economic turning points are difficult to identify in real time, which can leave monetary policy too restrictive even as growth and labor market conditions begin to weaken. That risk is particularly relevant today, as the Fed weighs persistent inflation against emerging signs of softer employment while considering whether rates need to remain elevated or move higher.

The historical lesson implication for bond holders is that neither an aggressive tilt to long duration (betting on a future where rapid cuts occur at some point) nor an aggressive tilt to short duration (betting on hikes) is likely to be well rewarded from here. The prudent strategy is to align duration with an investor’s goals while favoring high quality and both geographic and industry diversification. This reduces exposure to any single central bank error.

In both equities and fixed income markets, investors should remain diversified and expect bouts of volatility as it is impossible to predict exactly when the Fed may choose to hike. For investors positioned for distributions, earmarking a portion of their fixed income allocation to short maturity bonds will help buffer some of this unpredictability and price movement.

Returns of Market Indices | August 2026

Equities rebounded in August on the heels of volatile July markets.  Global Equities (MSCI ACWI) and U.S. Large Caps (S&P 500) rose by 2.7%. U.S. Small caps (Russell 2000) posted a smaller gain of 1% for the month. Developed International Equities (MSCI EAFE) and Emerging Market Equities (MSCI EM Equity) posted gains of 2% and 3.5% respectively. Fixed income (Bloomberg US Aggregate) sold off but finished slightly positive (0.4%) as long-term yields rose to their highest levels since 2007.

Source: Bloomberg. EAFE is MSCI EAFE Index⁽¹⁾, Emerging Markets is MSCI Emerging Markets⁽²⁾ and U.S. Bonds is Barclays U.S. Aggregate⁽³⁾. ACWI is the MSCI ACWI Index⁽⁴⁾. Small Caps is the Russell 2000 Index⁽⁵⁾. S&P 500 is the S&P 500 Index⁽⁶⁾.The above information is as of 8/31/2026. Past performance is not indicative of future results.

 

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Sources

1. FactSet Earnings Insight, S&P 500 Earnings Season Update: August 28, 2026, John Butters (factset.com). Blended Q2 2026 earnings growth rate 52.0%; excluding Alphabet, 40.6%; excluding Alphabet and Amazon.com, 33.8%. Revenue growth 15.5% (highest since Q4 2021). Net profit margin 17.0% (record). Magnificent Seven Q2 earnings growth 118.5% (highest since Q4 2020); other 493 companies 31.8%. Forward 12-month P/E ratio 19.6. Analyst projections: Q3 2026 EPS growth 28.2%; Q4 25.8%; CY 2026 31.2%; CY 2027 14.4%. Alphabet Q2 GAAP EPS included $98 billion gain on equity securities, primarily related to unrealized gains in equity securities portfolio from SpaceX and a private company (Anthropic). Amazon Q2 GAAP EPS included $53.4 billion other income primarily due to investments in Anthropic.
2. Federal Reserve, “Keynote remarks by Chairman Warsh at the 2026 Jackson Hole Economic Policy Symposium,” August 28, 2026 (federalreserve.gov/newsevents/speech/warsh20260828a.htm). Address titled “In Our Time.” Direct quotations: “I would be hard pressed to describe broad financial conditions as restrictive.” “This summer’s inflation readings were better than expected, [but] they do not tell me that underlying inflation trends have meaningfully improved.” “Price stability is not self-executing, nor is inflation necessarily mean-reverting.” Chair Warsh marked his 100th day in office at the address.
3. CNBC, “Fed officials who voted to hike rates say action is needed now against inflation,” July 31, 2026 (cnbc.com). AOL/Reuters, “Fed dissenters sketch the case for a rate hike,” July 31, 2026. Direct statements from Cleveland Fed President Beth Hammack, Dallas Fed President Lorie Logan, and Richmond Fed President Tom Barkin as cited. Hammack: “Now is the time for the [Federal Open Market Committee] to act to speed the return of PCE inflation to our 2 percent objective.” Logan: “Without any policy restraint, inflation will likely continue to trend above target until there’s an unanticipated shock.” Barkin: “a strong case” for adding restraint (Wall Street Journal interview cited in CNBC).
4. CNBC, “Fed’s Kashkari says ‘now is the time to start slowly moving’ rates up,” August 5, 2026 (cnbc.com/2026/08/05). Direct quotation from Minneapolis Fed President Neel Kashkari: “A potential series of small policy moves would be better than waiting and eventually concluding that even bolder actions were necessary.” “I would rather get going now in small steps than wait till later, then we have a really entrenched inflation problem and have to raise rates aggressively.”
5. U.S. Bureau of Labor Statistics, Employment Situation Summary, July 2026, released August 7, 2026 (bls.gov). Nonfarm payrolls declined 23,000 in July 2026 versus consensus estimate of +83,000. May revised down 66,000 to +63,000; June revised down 37,000 to +20,000. Unemployment rate 4.1% (down from 4.2%). Labor force participation rate declined. Average hourly earnings +0.1% month-over-month, +3.2% year-over-year (lowest annual wage growth reading since May 2021).
6. U.S. Bureau of Labor Statistics, Consumer Price Index Summary, July 2026, released August 12, 2026 (bls.gov). Headline CPI +0.1% month-over-month, +3.4% year-over-year (down from +3.5% in June). Core CPI +0.2% month-over-month, +2.5% year-over-year. Gasoline component -2.9% month-over-month. Shelter contributed approximately two-thirds of monthly headline increase.
7. U.S. Bureau of Economic Analysis, Personal Income and Outlays: July 2026, released August 26, 2026 (bea.gov). Headline PCE +0.2% month-over-month, +3.7% year-over-year (unchanged from June). Core PCE +0.2% month-over-month, +3.3% year-over-year (unchanged from June). Personal income +0.4% month-over-month, personal spending +0.2% month-over-month. Core PCE year-over-year has remained in the 3.3% to 3.4% range for four consecutive months (April 3.3%, May 3.4%, June 3.3%, July 3.3%).
8. International Energy Agency, Oil Market Report, August 2026 (iea.org). Brent (North Sea Dated) rose approximately $25.67 per barrel during July 2026 to close the month at approximately $96.80 per barrel. Intra-month high of approximately $105 per barrel on July 23, 2026. August-end price above $90 per barrel following renewed U.S. and Iran hostilities and the reported U.S. strike on Iranian mine positions at Larak Island on August 30, 2026 (as reported by Reuters and Wall Street Journal).
9. Richmond Fed Economic Brief 16-11, “The Burns Disinflation of 1974” (richmondfed.org). Reed College Economics Department, “Disinflation in 1979-82 Case” (reed.edu/economics). Federal funds rate reached peak of 20% in June 1981 under Chairman Paul Volcker. Unemployment rate peaked at 10.8% in November 1982. CPI inflation rose from approximately 3.2% at end of 1972 to above 11% by 1975 during Chairman Arthur Burns’s tenure, then declined and rose again to above 13% by 1980. The 1972 to 1975 sequence of rate increases followed by cuts is the primary “stop-go” precedent cited in modern hawkish arguments.
10. Bankrate, “Federal Funds Rate History: 1980 Through the Present” (bankrate.com); Forbes Advisor, “Federal Funds Rate History 1990 to 2026” (forbes.com/advisor). Federal Reserve raised federal funds rate seventeen consecutive times between June 2004 and June 2006, from 1.00% to 5.25%. First rate cut of the 2007 to 2008 easing cycle was announced September 18, 2007. Fed paused between April 2008 and October 2008 before resuming aggressive cuts as the global financial crisis intensified. Peak-to-trough nonfarm payroll losses in the 2007 to 2009 recession totaled approximately 8.7 million (BLS). Unemployment rate reached cycle peak of 10.0% in October 2009 (BLS).
11. CFA Institute Enterprising Investor, “When the Fed Cuts: Lessons from Past Cycles for Investors,” September 17, 2025 (blogs.cfainstitute.org). Federal Reserve Bank of St. Louis On the Economy blog, “The Dual Mandate in Conflict: Balancing Current Tensions between Inflation and Employment,” March 2026 (stlouisfed.org). Greenspan Federal Reserve raised federal funds rate from 3.00% in February 1994 to 6.00% in February 1995, paused approximately six months, then reduced by 75 basis points over the balance of 1995 and 1996. The 1994 to 1995 sequence is the only case in the post-1980 record where a substantial rate increase was followed by a soft landing with no ensuing recession.

 

Key Takeaways:

• Teenagers with eligible earned income can contribute to a Roth IRA.
• For 2026, contributions are limited to the lesser of $7,500 or 100% of taxable compensation.
• A parent or grandparent can fund the contribution if the teenager has eligible compensation.
• For business-owning families, legitimate employment of a child may create tax and income-shifting opportunities.

The first paycheck is an exciting milestone. For families who think intentionally about the next generation, it’s also a natural opening to discuss financial responsibility and long-term planning. A Roth IRA can be where that conversation begins.

Can a Teenager Contribute to a Roth IRA?

Once a child has earned income, they’re eligible to contribute to a Roth IRA. For 2026, their total contribution is limited to the lesser of $7,500 or 100% of taxable compensation.

While most haven’t started thinking about retirement (and understandably so), they have an advantage even seasoned investors can’t replicate: time. The money contributed has the potential to compound for 40, 50, even 60 years. Time is the one input you can’t buy back later.

The dollars funding the account don’t have to be the exact dollars the teenager earned. A parent, grandparent, or other person can gift them the funds, provided the child has sufficient eligible compensation to justify the contribution. This gives families the flexibility to decide how their earned income is used.

For minors, the account would need to be established as a Custodial Roth IRA, opened and managed by a custodian with the minor as the beneficial owner. All funds are required to be used for their benefit. The account would function in the same way and convert to a regular Roth IRA once the child reaches the age of majority.

When a Family Business Is Involved

The strategy becomes more interesting for families who own a business. If a child is hired to do legitimate work – real work at a reasonable rate, the test the IRS applies – the compensation can be deducted as a business expense, shifting income from the owners to the child at a lower rate.

The math is favorable. For 2026, a dependent’s standard deduction is the greater of $1,350 or earned income plus $450, up to the regular standard deduction, so a child may be able to receive a meaningful amount of compensation with little or no federal income tax owed.

There’s also an employment-tax advantage worth noting. Wages paid to a child under 18 working for a parent’s sole proprietorship, or for a partnership in which each partner is the child’s parent, are generally exempt from the combined Social Security and Medicare tax (FICA). Wages paid to a child under 21 in that arrangement are also generally exempt from the Federal Unemployment Tax (FUTA).

This doesn’t apply if the business is a corporation or a partnership with a non-parent partner. Done right, it’s a deductible expense that funds a child’s earned income, which can then be used to fund a Roth IRA, compounding tax-free for decades.

How to Use a Roth IRA to Talk About Money?

The dollars contributed to the Roth IRA often aren’t the most valuable part of the account. What it offers a family is a low-stakes, real way to have conversations that are hard to have otherwise:

• The difference between saving and investing
• Types of investments and the rationale for selecting them
• How compounding works over long periods
• Why volatility is normal and how markets fluctuate
• Designing a wealth plan across family generations

Financial habits aren’t built overnight. They’re often shaped by small experiences and choices over time. An investment account can make the concepts tangible long before someone manages their own finances.

These dialogues tend to stick when they’re tied to a teenager’s own money and future. Waiting until an inheritance to have those conversations is a decade too late.

Thinking Beyond Retirement

A Roth IRA is designed for retirement, but its flexibility can make it useful well before then. Contributions, not earnings, can be withdrawn at any time tax- and penalty-free. That money stays accessible if priorities change, even as the goal remains to leave it invested.

Withdrawals of Roth IRA earnings have more restrictions. Distributed gains are exempt from income tax and the 10% early withdrawal penalty only if applicable requirements are met. The IRS has a comprehensive publication discussing the taxation of Roth IRA earnings, including qualified and non-qualified distributions, the 5-year rule, and applicable exceptions. Some of the rules can be complex. Consider speaking with an advisor or tax professional for guidance and with any questions.

The Roth IRA also doesn’t have to remain exclusively a “retirement” target. Left alone, it can become a multigenerational asset that continues to compound throughout the owner’s lifetime, passing to heirs without the same tax drag as a traditional retirement account. Non-spouse beneficiaries are subject to the 10-year distribution rule. Still, the absence of income tax on those distributions is a significant difference from what an inherited traditional IRA or 401(k) leaves behind.

Does Teaching Investing Early Leave a Lasting Impact?

We often talk about the planning that happens around life’s major transitions, whether a business sale, an inheritance, or retirement, but thoughtful planning doesn’t always begin with a key event. Sometimes the smallest account in the family plan is the most rewarding.

Introducing investing early isn’t simply about the account balance. It’s about teaching discipline, building long-term thinking, and preparing the next generation to understand and ultimately manage what has been built. For families planning for what comes next, that may be the real opportunity.

Contact us. 

July closed as a strong month for corporate fundamentals and a bruising one for market expectations. Second-quarter earnings grew at their fastest pace since 2021, but markets became more volatile late in the month after the Federal Reserve held interest rates steady, while three policymakers dissented, arguing that rates should be raised. Long-term Treasury yields hit multi-year highs, oil surged more than 20% on renewed conflict in the Middle East, and the S&P 500’s eleven-year July winning streak ended by the narrowest of margins.

Q2 Earnings Are Real, But the Headline Number Is Not the Whole Story

Second-quarter earnings growth ranks as the S&P 500’s strongest since the third quarter of 2021, with FactSet’s blended year-over-year growth rate at 47.4% as of July 31.¹ The headline figure reflects both broad-based earnings strength and two outsized contributors. Alphabet recorded a $98 billion mark-to-market gain on equity securities under Generally Accepted Accounting Principles (GAAP), driven primarily by unrealized gains on their holdings in SpaceX and Anthropic, even though they did not sell the underlying investments. Amazon’s stronger-than-expected cloud results provided a further boost when the company reported on July 31.¹ Excluding those two companies, the blended earnings growth rate is 28.8%. Even with these outliers, this is an exceptional result that marks the second consecutive quarter above 20% and the seventh straight quarter of double-digit growth.

• Ten of the eleven sectors are reporting year-over-year growth: Of those ten sectors, eight are reporting double-digit earnings growth, led by Energy, Communication Services, Consumer Discretionary, Information Technology, and Materials. Health Care is the lone sector reporting a decline. Revenue growth is 12.8%, the highest since Q2 2022 and the second consecutive quarter of double-digit top-line growth. Guidance for the second half remains constructive, with more S&P 500 companies issuing positive third-quarter EPS guidance than the historical average.¹
• Market breadth remains a concern despite the earnings strength: The Nasdaq-100 fell roughly 7% in July, its steepest monthly decline since March 2025, as investors questioned elevated AI-related valuations even while the underlying earnings kept beating expectations. The broader Nasdaq Composite declined 3.2% for the month, its worst monthly performance since March 2025.²

Implications for Investors: The Q2 numbers are strong on any honest reading. The 28.8% excluding Alphabet and Amazon is more representative of what the median S&P 500 company is doing and is an encouraging figure. Investors should read the headline earnings growth rate with the same care they would read a headline inflation number that includes one large volatile component. The underlying trend is what matters for portfolio construction, and by that measure earnings continue to justify constructive positioning in high-quality equities, though not at any price.

 

The Warsh Fed Delivers Its First Contentious Meeting

The Federal Open Market Committee held the federal funds rate at 3.50 to 3.75% at its July meeting, but the 9-3 vote was the least unified decision in years. Three regional Fed presidents dissented in favor of a 25 basis point hike, marking the first time since September 2016 three policymakers dissented in the same direction against the majority.³ The dissenters were Cleveland’s Beth Hammack, Minneapolis’s Neel Kashkari, and Dallas’s Lorie Logan. Their concerns are the ones markets have been debating for months: inflation has sat above the Federal Reserve’s 2% target for more than five years, oil prices have surged more than 20% in July as the June ceasefire with Iran collapsed, and the labor market remains solid enough that a rate hike would not immediately threaten employment.⁴

• The dissents came from the most hawkish members of the committee: The following chart shows each FOMC member’s positioning on a hawk-to-dove scale (measuring the degree to which each policymaker favors higher rates to contain inflation, versus lower rates to support employment) compiled by ITC Markets Research. Crestwood clients who tuned into our July Webinar about the Warsh Fed will note that this chart is similar to one we covered.
• As we noted in the webinar: The three July dissenters are in the hawkish camp of the committee. Their vote for a hike is consistent with their published views over the past year and not a sudden shift in their thinking. What has shifted is the willingness to publicly break with the majority. Chair Warsh has explicitly encouraged this kind of dissent, telling reporters after the meeting, “I asked for a good family fight and I got one.”⁵

Source: ITC Markets Research, FOMC Hawk/Dove Analysis, last updated June 26, 2026. Voting rotations reflect Federal Reserve Board records. Bar length indicates policy positioning on a scale from most dovish (blue) to most hawkish (red); gold dots indicate voting years for regional Fed presidents. *Venable is interim Atlanta Fed president following Bostic’s February 2026 resignation.

 

• Long-term yields rose sharply on the outcome: Chair Warsh’s press conference triggered a swift repricing in the bond market. The 30-year Treasury yield hit 5.25%, its highest mark since 2007. The 10-year yield topped 4.7%, its highest since January 2025. The Dow dropped approximately 1,150 points during the press conference as investors reassessed the Fed’s path.⁶ Warsh addressed the market reaction directly, saying he views it as healthy that the bond market responds to economic data rather than the Fed’s forward guidance. This is consistent with his stated philosophy that the Fed should communicate less about future policy and more about the conditions under which action would occur.⁶
• The market is now pricing a real chance of a hike, not just an extended pause: The CME FedWatch tool showed the probability of a September rate hold rose immediately after the July meeting. The move higher does not reflect increased confidence that the Fed will hold, but rather an increase in uncertainty. Investors are increasingly pricing in a rate hike by year-end, particularly if inflation data continues to run above target and oil prices stay elevated. The next FOMC meeting is September 15-16, following the July and August inflation reports.³ Chair Warsh will speak at the Jackson Hole Economic Policy Symposium on August 27-29, and markets will read that address carefully for any signal on how his approach may evolve heading into September.³

Implications for Investors: The hawk-dove chart is a useful reminder that the FOMC is a committee with twelve voters, each with distinct views, not a single voice. The three July dissents did not come out of nowhere; they came from members whose positions on inflation have been consistent and public for months. What is new is a Chair who welcomes public disagreement rather than suppresses it. For investors, this means Fed communication will be noisier than under the prior Chair, and the September meeting outcome is genuinely uncertain rather than telegraphed in advance. Duration risk in fixed income portfolios warrants ongoing monitoring and alignment with each individual investor’s financial goals.

 

Trends We Are Watching

• Small caps had their strongest first-half relative to the S&P 500 since 2001, but that lead unwound in July: The Russell 2000 led through the early part of July before giving back its gains on the Fed decision, finishing the month down roughly 3%. Small caps typically benefit from expectations of rate cuts and a broadening of market participation beyond mega-cap technology; a hawkish Fed pivot removes both tailwinds. The July reversal is a reminder that the small-cap rally is highly rate-sensitive.²
• June inflation data cooled, but the details tell a nuanced story: On July 30, the Bureau of Economic Analysis released the June reading for the Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge. Headline PCE fell 0.1% month-over-month, with the year-over-year rate slowing to 3.7% from 4.1% in May. Core PCE rose just 0.1% month-over-month, with the year-over-year rate easing to 3.3% from 3.4% in May.⁷ June PCE moved in the right direction, but core PCE at 3.3% remains well above the Federal Reserve’s 2% target, and the June cooling was driven primarily by energy prices tied to the temporary Iran ceasefire, which has since unraveled.⁷
• The S&P 500’s July winning streak has ended: The S&P 500 had posted gains every July from 2015 through 2025, an 11-year streak that made July statistically the market’s strongest month over the past two decades. That streak ended last month with the S&P 500 closing down 0.1% for the month, driven by the late-month volatility around the FOMC decision and the sharp rise in long-term yields. The Nasdaq Composite fell 3.2% while the Dow gained 0.3%, its fourth consecutive monthly gain.⁸

The Takeaway

July’s data confirmed two things portfolio construction has been anticipating for months: corporate earnings remain strong enough to justify equity exposure, and the path of Federal Reserve policy is more contested than at any point in the current cycle. Chair Warsh explicitly said at his July 29 press conference that cooler June inflation data did not factor significantly in the decision to hold rates. This can be seen as a signal that the FOMC will need more than one favorable data point to consider easing, and a hint that July’s oil rally is likely to make the next round of CPI and PCE releases look worse rather than better. In the meantime, the case for balanced positioning across duration, quality, and geography is stronger than it was three months ago, and the case for concentrated exposure to any single theme, including AI, is more nuanced than the market has been pricing. Patience and discipline remain the right posture heading into the fall.

Returns of Market Indices  |  July 2026

Global equities and U.S. large caps were nearly flat for the month (MSCI ACWI +0.1%, S&P 500 -0.1%).⁸ International developed markets (MSCI EAFE) fared better, returning +1.98%.⁹ Emerging market equities and U.S. small caps both declined by 3% for the month (MSCI EM Equity and Russell 2000, respectively). Fixed income sold off as long-term yields rose to multi-year highs, with the 30-year Treasury yield reaching 5.25%, its highest level since 2007, and the 10-year Treasury reaching 4.7%. The bond market finished down 1.3% for the month (Bloomberg US Aggregate Total Return Index).⁶ Year-to-date returns are shown in the chart below.

Past performance is not indicative of future results.

 

Sources

1. FactSet Earnings Insight, S&P 500 Earnings Season Update: July 31, 2026, John Butters. Blended (year-over-year) Q2 2026 earnings growth rate 47.4 percent; excluding Alphabet and Amazon.com, 28.8 percent. Alphabet Q2 2026 GAAP EPS included a $98 billion mark-to-market gain on equity securities, driven primarily by unrealized gains on holdings in SpaceX and a private company (Anthropic), per Alphabet Q2 2026 filing (“primarily related to unrealized gains in our equity securities portfolio from SpaceX and a private company”). Revenue growth 12.8 percent, highest since Q2 2022. Eight of ten sectors reporting year-over-year growth are reporting double-digit growth; Health Care is the only sector reporting a decline.
2. CNBC, “Stock market news for July 30, 2026,” July 30, 2026 (cnbc.com); CNBC, “.RUT Russell 2000 Index quotes and news,” accessed August 1, 2026. Nasdaq-100 declined approximately 7 percent in July 2026, the steepest monthly decline since March 2025. Russell 2000 first-half 2026 outperformance vs. S&P 500 the largest since 2001 (Charlie Bilello, Creative Planning; Franklin Templeton).
3. CNBC, “Fed rate decision July 2026: Divided Fed holds interest rates steady,” July 29, 2026 (cnbc.com); Fox Business, “July FOMC: Fed holds interest rates steady,” July 29, 2026 (foxbusiness.com). FOMC voted 9-3 to hold the federal funds rate at 3.50-3.75 percent. Dissenters: Beth Hammack (Cleveland Fed), Neel Kashkari (Minneapolis Fed), and Lorie Logan (Dallas Fed), each voting for a 25 basis point hike. First time three FOMC members dissented in the same direction against a hold since September 2016. CME FedWatch: 41.9 percent probability of a September hold post-meeting, up from 24 percent one day earlier. Next FOMC meeting September 15-16, 2026.
4. TradingEconomics, “Brent Crude Oil,” July 31, 2026; TradingEconomics, “Crude Oil,” July 31, 2026. Brent crude closed July 31 at approximately $88 per barrel; WTI approximately $85 per barrel. Both benchmarks rose more than 20 percent in July on renewed U.S.-Iran hostilities following the collapse of the June ceasefire.
5. ITC Markets Research, FOMC Hawk/Dove Analysis, last updated June 26, 2026. Chart data: Bar length indicates each FOMC participant’s positioning on a hawk-to-dove scale, with red indicating hawkish and blue indicating dovish. CNN Business, “Two key takeaways from the Fed’s unusually unpredictable meeting,” July 29, 2026. Chair Warsh quoted: “I asked for a good family fight and I got one.”
6. CNN Business, “Fed holds interest rates steady after cliffhanger meeting, but three officials dissent,” July 29, 2026. 30-year Treasury yield reached 5.25 percent (highest since 2007); 10-year Treasury yield reached 4.7 percent (highest since January 2025). Dow Jones Industrial Average declined approximately 1,150 points during Chair Warsh’s press conference on July 29, 2026. Bloomberg US Aggregate Total Return Index July 2026 return approximately -1.3 percent (Bloomberg terminal data, accessed August 1, 2026).
7. U.S. Bureau of Economic Analysis, Personal Income and Outlays: June 2026, released July 30, 2026 (bea.gov). PCE price index declined 0.1 percent month-over-month in June 2026; year-over-year PCE increased 3.7 percent, down from 4.1 percent in May 2026. Core PCE (excluding food and energy) rose 0.1 percent month-over-month; year-over-year core PCE increased 3.3 percent, down from 3.4 percent in May 2026. Real personal consumption expenditures increased 0.4 percent month-over-month. Chair Warsh’s comment on the June PCE release was reported in Quartz, “June 2026 PCE inflation falls 0.1%, consumer spending up 0.3%,” July 30, 2026 (qz.com).
8. TradingEconomics, “United States Stock Market Index,” July 31, 2026 (tradingeconomics.com); Bloomberg via Yahoo Finance, “S&P 500 Historical Data,” accessed August 1, 2026. S&P 500 closed July 31 at 7,489.72, down approximately 0.1 percent for the month. Nasdaq Composite closed at 25,373.85, down approximately 3.2 percent for the month. Dow Jones Industrial Average closed at 52,485.03, up approximately 0.3 percent for the month, its fourth consecutive monthly gain. S&P 500 had risen in every July from 2015 through 2025 (11-year winning streak); July 2026 was the first negative July since 2014.
9. MSCI Inc. and Bloomberg terminal data, accessed August 1, 2026. MSCI EAFE Index July 2026 monthly return +1.98%; trailing 12-month total return 25.06%. MSCI EM Index trailing 12-month total return 37.04%. YTD returns as of July 31, 2026 (per embedded chart, Bloomberg terminal data): MSCI ACWI +11.61%; S&P 500 +10.12%; MSCI EAFE +12.08%; MSCI Emerging Markets +20.25%; U.S. Bonds (Bloomberg U.S. Aggregate) -0.69%; U.S. Small Caps (Russell 2000) +18.98%.