Sign in Subscribe
6 min read

Sep-26 Outlook

TrendWell Digest: September 2026 ETF Picks

August was a month of whipsawing Fed expectations. A surprise contraction in July payrolls sent September hike odds tumbling early in the month, a cooler July CPI (3.4% headline, 2.5% core) pushed them lower still—and then Kevin Warsh's unexpectedly hawkish first Jackson Hole keynote on August 28 swung them right back, with fed funds futures pricing roughly 60% odds of a quarter-point hike at the September 15–16 meeting. Beneath the noise, the real economy held its footing: the jobless rate sits near 4.1% and has barely moved, Hormuz oil flows have recovered to about two-thirds of pre-war levels even with Brent near $90, and a narrow, tech-led equity market saw volatility spike and then ease on strong tech earnings. This month's five picks—blue chips, utilities, global equities, mid-cap value, and technology—map directly onto that configuration. Based on more than 25 years of historical data (back to October 2000), when all of these predictive drivers have aligned as they do now, this group has delivered an average annualized return of 12%.

DIA — SPDR Dow Jones Industrial Average ETF

DIA tracks the Dow Jones Industrial Average, providing exposure to 30 large U.S. blue-chip companies.

  • No defensive stampede into staples: XLP (Consumer Staples) sits at 65% of its 52-week price range—comfortably mid-range, not pressing its highs. Despite a hawkish Fed and Middle East noise, investors haven't crowded into the classic safety sector, a sign risk appetite for quality blue chips remains intact. DIA has averaged 16% annualized when XLP sat at this point in its range or lower, versus 3% when staples were near their peaks.
  • Stable unemployment: The three-month change in the unemployment rate (LNU01300000) is flat at 0%—July's payroll stumble notwithstanding, the jobless rate itself has held near 4.1%. A steady labor market underpins earnings across the Dow's mature industrial and consumer franchises. DIA has averaged 15% annualized when unemployment held flat, versus -4% when it was rising.

XLU — Utilities Select Sector SPDR Fund

XLU tracks the S&P 500 Utilities sector, including electric utilities, multi-utilities, and independent power producers.

  • Front-end pricing firming toward a hike: The prior month's change in the spread between 3-month Treasury yields and the Fed funds rate (T3MFF) rose 3%, as bill yields drifted up with September hike odds climbing back toward 60% after Jackson Hole. Historically, a firming front end has marked the later stages of tightening cycles—precisely when income investors begin locking in utility dividend yields ahead of the eventual rate peak. XLU has averaged 11% annualized when T3MFF rose this much or more, versus 1% otherwise.
  • Tech regime still intact—the contagion gate is open: A Hidden Markov Model—an algorithm that classifies market regimes from price behavior—puts the probability that technology stocks (XLK) are in a bear market at just 10%. This matters for utilities because when tech genuinely breaks down, the selling spares nothing: XLU averaged 11% annualized when the XLK bear probability was 10% or lower, versus -21% when the model signaled a likely tech bear market.
  • A modest dip sets up mean reversion: XLU itself is down 1% over the past three months—a mild pullback rather than a breakdown. Small dips in utilities have historically preceded rebounds as yield-seeking capital steps in. XLU has averaged 8% annualized when its three-month return was this low or lower, versus 4% when it was already rallying.

DGT — SPDR Global Dow ETF

DGT tracks the Global Dow Index, offering exposure to 150 leading large-cap companies across developed and emerging markets.

  • Small-value's return pattern is evolving, not frozen: An optimal-transport (Wasserstein) drift measure—a statistical gauge of how far the recent return distribution of small U.S. value stocks (IJS) has moved from its own history—reads 2%. Modest drift means market character is shifting rather than stagnating; completely static conditions have historically been a dead-money signal for global equities. DGT has averaged 14% annualized when IJS drift registered 2% or higher, versus -1% when return patterns were essentially frozen.
  • Front-end rate volatility dormant: The three-month volatility of the 3-month Treasury yield (WGS3MO) registers just 3% of its historical norm—nine months of unchanged Fed policy have kept realized front-end moves minimal even as hike odds seesawed. Predictable short-term financing conditions favor multinational blue chips. DGT has averaged 7% annualized when WGS3MO volatility was this dormant or calmer, versus 4% otherwise.
  • No froth in last month's tape: DGT itself gained just 1% last month—unstretched positioning with room to run. Modest prior-month returns have historically been better entry points than hot streaks. DGT has averaged 7% annualized when its prior-month return was 1% or lower, versus 2% when it entered the month already extended.

IJJ — iShares S&P Mid-Cap 400 Value ETF

IJJ tracks mid-cap U.S. value stocks, blending the size premium of mid-caps with value-factor exposure.

  • Stable unemployment: The flat three-month change in the unemployment rate (LNU01300000) supports the consumer spending and business investment that cyclical mid-cap value names depend on—and the downside case is stark: IJJ has averaged 19% annualized when unemployment held steady, versus -5% when it was rising.
  • Muted AI forecast for energy: Google's TimesFM AI forecasting model projects just a 2% return next month for energy stocks (XLE)—reading the Hormuz supply recovery as capping oil's upside. Contained energy expectations mean margin relief for the industrial and manufacturing names concentrated in mid-cap value. IJJ has averaged 13% annualized when the XLE forecast was 2% or lower, versus -2% otherwise.
  • Front-end drift signals an economy absorbing tighter policy: The 3% prior-month rise in the T3MFF spread reflects markets pricing Fed action against a backdrop of steady jobs and solid activity—historically an environment where cyclical value holds up well. IJJ has averaged 12% annualized when T3MFF rose this much or more, versus 9% otherwise—a modest but consistent edge.

XLK — Technology Select Sector SPDR Fund

XLK tracks the S&P Technology Select Sector, including major software, hardware, and semiconductor companies.

  • Near-term Nasdaq volatility elevated versus its own year: Three-month realized volatility in QQQ is running at 134% of its trailing twelve-month level—the residue of August's jobs-miss and Jackson Hole swings, even after strong tech earnings calmed the tape late in the month. Volatility expansions of this kind have historically clustered around inflection points that resolved upward for tech. XLK has averaged 16% annualized when the QQQ volatility ratio was at this level or higher, versus 9% when near-term volatility was subdued.
  • Small-value stuck in chop—leadership stays with tech: A rough-path signature (Lévy area) measure—a gauge of whether small U.S. value stocks (IJS) are trending versus mean-reverting—reads -1%, indicating choppy, directionless behavior rather than a momentum-driven value rotation. With no rotation trend pulling capital away, leadership has historically stayed concentrated in large-cap tech. XLK has averaged 14% annualized at this reading or lower, versus 12% otherwise—a thin but directionally consistent edge.
  • Front-end rate volatility calm: The six-month volatility of the 3-month Treasury yield (WGS3MO) registers just 3% of its historical norm. Stable short rates keep the discount applied to tech's long-duration earnings steady. XLK has averaged 13% annualized when WGS3MO volatility was this calm or calmer, versus 12% otherwise—marginal, included for completeness.

Conclusion

September's setup hinges on a Fed meeting the market can't fully handicap—roughly 60% hike odds after Warsh's hawkish Jackson Hole debut—yet the drivers point to resilience beneath the policy drama: a jobless rate pinned near 4.1%, realized front-end rate volatility at a fraction of historical norms, no defensive crowding into staples, and a tech regime the models still classify as healthy. That combination spans this month's picks—defensive yield in XLU, quality blue chips in DIA and DGT, cyclical value in IJJ, and continued tech leadership in XLK—a mix with exposure on both sides of the hike-or-hold outcome. Across more than a quarter century of data, this alignment has been a favorable one—and we hope your portfolio continues to TrendWell.

This article is for informational purposes only and does not constitute financial advice.

Sources:

  • Federal Reserve, "Keynote remarks by Chairman Warsh at the 2026 Jackson Hole Economic Policy Symposium," August 28, 2026 (federalreserve.gov)
  • CNBC, "Jackson Hole analyst roundup: Warsh's speech sends hike chances higher," August 31, 2026 (cnbc.com)
  • CNBC, "Odds the Fed will hike in September tumble following big July jobs miss," August 7, 2026 (cnbc.com)
  • Forbes, "Why The Fed Will Raise Rates In September Despite Cooler CPI," August 12, 2026 (forbes.com)
  • Saxo, "Market Quick Take — Tech earnings lift a narrow market as Warsh takes the Jackson Hole stage," August 28, 2026 (home.saxo)