The variables driving markets have not changed much in the past few years. The direction has, and it matters for how you sequence taxable income between now and December 31.
Before turning to markets, the conflict between the United States and Iran carries a very real human cost, and the escalation of the past week has made that worse for people in the region. What follows is focused on markets and financial planning and is not meant to minimize any of that.
What has changed
We have framed our market outlook around three interconnected variables since 2022: interest rates, inflation, and economic growth. That frame has not changed. What has changed this year is the direction of travel on the first two.
Coming into 2026 the expectation was that the Federal Reserve would continue cutting. Inflation has not cooperated. The federal funds rate has been on hold at 3.50% to 3.75% all year, and the Fed has noted that inflation remains elevated relative to its 2% goal. [1] The conversation has shifted from when the Fed will cut to whether it needs to raise, and markets are currently leaning toward an increase at the September meeting. [2]
Energy is a large part of the reason. The ceasefire between the United States and Iran lapsed in mid-August without a replacement, and strikes resumed this week. Brent crude closed at $95.63 a barrel on September 2. [3]
The chain from there is worth walking through, because it is what makes the rest of it make sense. Higher energy prices raise transportation and production costs. Those costs filter into a wide range of goods and services. Inflation gets stickier as a result. And a Fed that is fighting inflation has less room to cut if something else in the economy goes wrong. That last point is the one we pay the most attention to.
The structural piece
Separate from the current news cycle, we are watching government debt levels domestically and abroad. Bond yields have moved higher across a number of developed markets this year, which is the market’s way of asking harder questions about how much governments can borrow and at what price. [4][5]
What concerns us is less the debt itself than the apparent lack of political appetite for addressing it. Higher future tax rates are not on the books today, and we are not forecasting them. But the possibility is real enough to affect how we think about the sequencing of taxable income over a multi-decade horizon.
Markets have been stronger than the backdrop suggests
Despite all of this, equity markets have had a strong year. The S&P 500 is up roughly 12.8% including dividends through September 2. [6]
The composition is worth understanding. Energy has been the leading sector this year, up about 43%, while AI infrastructure spending has continued at scale. [7][8] The gains have been broader than the AI story alone would suggest.
On AI specifically, we think the productivity and profitability gains the technology may deliver represent a genuine long term opportunity. We also recognize the risk, which is that it underdelivers relative to what is being spent on it. Both can be true, and we size positions with that in mind.
What this means for planning
Most of the decisions that change a tax outcome have to be made before December 31, not in April when the return is filed. Roth conversions, capital gains realization, charitable giving strategy, and retirement plan deferrals all close out at year end.
The window is shorter than it appears. Custodians and plan administrators have year end processing cutoffs that fall well before December 31. A Roth conversion cannot be reversed once executed, so it needs to be modeled against a full year projection rather than estimated in late December. [9] And for anyone on extension, the 2025 return is not due until October 15, which means the information needed to plan well may not be in hand until mid-October. [10]
A period of higher rates and unsettled inflation does not change the mechanics of any of this. It changes the value of doing it deliberately rather than in a rush.
How we approach it
We are not recommending dramatic changes to portfolio positioning. Short term noise from geopolitical conflict has historically mattered far less to long term outcomes than it appears to at the time. History is not a guarantee, and we do not manage portfolios as though it were, so we keep protective elements in place sized to each client’s risk tolerance and time horizon.
On the planning side, the work is more specific. Whether any given strategy makes sense depends on income, deductions, state of residence, and timeline. That analysis is the substance of what we do, and it is why we spend more time talking with clients about taxes than about the markets.
If you would like to talk through what the current environment means for your own situation, our process starts with a Fit meeting.
As of writing September 3, 2026
Sources
1. Federal Reserve, FOMC minutes, July 29, 2026: https://www.federalreserve.gov/monetarypolicy/fomcminutes20260729.htm
2. CNBC, September 2, 2026, citing CME Group FedWatch: https://cnbc.com/2026/09/02/us-iran-trump-war-escalation-latest-fed-rate-g20-bessent-yen-.html
3. CNBC, September 2, 2026: https://cnbc.com/2026/09/02/brent-oil-us-iran-strikes.html
4. Wall Street Journal: https://www.wsj.com/finance/investing/bond-yields-around-the-world-soar-in-challenge-to-government-borrowing-c519c53f
5. Wall Street Journal: https://www.wsj.com/economy/global/global-bond-yields-surge-as-oil-prices-fuel-inflation-worries-ef5c0192
6. Slickcharts, S&P 500 year to date total return through September 2, 2026: https://www.slickcharts.com/sp500/returns/ytd
7. CNBC market wrap, September 1, 2026: https://www.cnbc.com/2026/08/31/stock-market-today-live-updates.html
8. Wall Street Journal: https://www.wsj.com/economy/global/how-the-ai-investment-craze-is-keeping-the-global-economy-afloat-0d62c000
9. IRS: a conversion to a Roth IRA cannot be recharacterized (2018 and later tax years)
10. IRS, extended filing deadline for 2025 individual returns (Form 4868): October 15, 2026
Wall Street Journal links may be behind a paywall.
