U.S. equities opened the post-Labor Day session on weak footing, reflecting growing anxiety that the straightforward rallies characterizing 2026 may be losing momentum. The Dow Jones Industrial Average fell 1% on Tuesday, marking its steepest single-day drop in over two weeks and pulling the blue-chip index down 2.1% for the month of September.
Market tension was further amplified by a resurgence in the Cboe Volatility Index, commonly referred to as Wall Street’s fear gauge, which signaled potential turbulence for the S&P 500 over the coming month. Mark Hackett, chief market strategist at Nationwide Investment Management Group, observed that selling pressure appeared to outweigh buying interest. “It almost feels like it’s easier to sell than buy,” Hackett said during a Tuesday interview.
Investors are grappling with a confluence of domestic and international headwinds. Deteriorating trade dynamics between the United States and Canada, a renewed escalation in the Iran conflict, and a 60% year-over-year surge in U.S. benchmark oil prices—now exceeding $92 per barrel—are weighing on sentiment. Market caution is expected to persist leading up to Friday’s August consumer-price index report, which is seen as a critical indicator for Federal Reserve policy.
Emily Roland, co-chief investment strategist at Manulife John Hancock Investment Management, identified inflation as the central concern. With the Fed under new Chairman Kevin Warsh, Roland argued that a rate hike at the Sept. 15-16 meeting may be inevitable to prevent a sharp decline in the dollar. A weaker dollar would increase import costs and exacerbate inflationary pressures, while also risking a further sell-off in long-term Treasury bonds.
Yields on 10-year and 30-year Treasuries have already hovered near multi-decade highs, approaching 4.8% and 5.25%, respectively. In response, the Treasury Department plans to at least double its buybacks of longer-dated debt this Wednesday to stabilize yields. According to the CME FedWatch Tool, the market is pricing in a 60% probability of a September rate hike and a 36.7% chance of a second increase in December.
The recent rally, which saw the S&P 500 climb 12.4% despite flat Federal Reserve rates, was largely driven by blistering corporate earnings growth and enthusiasm for artificial intelligence. The PHLX Semiconductor Index surged nearly 70% this year, but the iShares MSCI USA Momentum Factor ETF has retreated from its summer peaks. Hackett noted that investor sentiment is shifting as concerns grow over the massive debt and equity issuance by AI “hyperscalers” funding data-center expansions, compounded by political backlash ahead of the midterm elections.
“It’s a lot easier to buy a fast-growing stock when everyone is on your side,” Hackett said, highlighting the changing landscape for momentum-driven investments.
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