I Choose Free Will

I hope your summer was delightful. Personally, fall is my favorite season. There is just something I like about the cooler temps, longer nights, and the need for a sweater in the evening. Given that the band Rush is on tour and coming to the Bay Area, I’ve had one of their songs get stuck in my head, and by the end of this letter I’ll explain why it has everything to do with your portfolio.

Quarter In Review

There were definitely some headwinds this quarter, including in the job market (higher unemployment and lower new job formation), rising geopolitical tensions around Iran and the Strait of Hormuz impacting diesel and energy prices, ongoing headlines around AI infrastructure booms (and rising fears of an AI crash, an extinction level event, or both), and interest rates took off on a bit of a tear. Despite that, the S&P 500 managed to eke out a gain for the quarter, and has a total return of 12.7% on the year.

Mayhem in the Bond Market: What’s Really Driving Yields?

While stock market chatter gets the glamorous headlines, the real action this quarter - and the root cause of a lot of current market friction - is happening in the bond market. Yields are rising: as shown in the previous graphic the yield on the 10-year Treasury rose 1.11 percentage points on the year (111 bps), which might not feel like a lot, but is considered massive in the bond market. In September the 10-year Treasury yield reached 5.34%, its highest level since 2002.

Every tick higher in yields impacts everything from mortgage rates to government borrowing costs, making it a critical pressure point to watch. Given that rates are integral to our daily lives, as well as the long-term financing of the US debt, it warrants a deeper look at some of the factors that are the likely drivers:

Inflation and Energy Prices: Stubborn inflation, heavily fueled by spiking energy and diesel costs tied to the Hormuz and Iran conflicts, requires higher nominal interest rates to ensure yields outpace inflation. Historically, investors have often demanded roughly 2% above inflation. Therefore, if inflation is 3.5%, the 10-year Treasury would be around 5.5%. This is, not coincidentally, about where we are.
Deficits, Debt, & Repayment Risk: The U.S. public debt recently crossed the staggering $40 trillion mark, with the nation on track to add another $2 trillion in 2026 alone. That means the Treasury needs to sell more and more bonds just as buyers grow increasingly wary of long-term repayment risk.
Global Risks & International Buyers: Rising global friction and alternative pressures mean traditional international buyers of U.S. debt are stepping back.
The AI Infrastructure Squeeze: There is a finite amount of global capital. Massive, high-yielding private and corporate infrastructure deals tied to the AI boom are actively competing for and sucking up a portion of the capital that would otherwise flow into the bond market

There was an interesting bit of palace intrigue this quarter with Treasury Secretary Bessent’s gambit to bring down rates. He attempted to bring rates down by purchasing bonds at the long duration end of the curve, and by exerting a little Wizard of Oz “pay no attention to the man behind the curtain” bravado. The mechanics can be complicated; at the risk of oversimplifying, the Treasury tried to significantly increase the amount of bonds it buys back on the open market (buying equals demand, demand drives down interest rates). In the end, despite his best efforts, the market shrugged and long-term yields pushed higher.

On the consumer front

How does this play out in the lives of everyday Americans? According to data from the Atlanta Fed, home affordability is at a 20 year low, with an extreme disconnect between household income and home prices. Home prices tend to be “sticky” (home sellers tend to anchor on a price and are not forced to sell for a lower price, even if they want to move to a new home), but mortgage rates can and do change daily. This can lead to a disconnect in the housing market where prices should come down more than they have in order to keep in line with the affordability trend line…but simply don’t.

That, and other factors such as the high price of energy, have led the Gallup survey of Economic Confidence to poll at numbers that are nearly as bad as they were in lockdowns following Covid-19. In the graph below, the pandemic lockdown period of 2020–2021 stands out. Consumer sentiment never really rebounded back to pre-Covid-19 levels and recently deteriorated once again.

25 years and 900 days

This quarter we crossed a sobering historical milestone. In September the nation marked 25 years since the 9/11 terror attacks. If you have ever visited Ground Zero in lower Manhattan then you know it’s a sobering and somber experience.

Pew Research reports that while people of a certain age report they can vividly recall the events of 9/11, one quarter to one third of the country was born after the events of 9/11. Given this, I thought a little market history around this event might be instructive.

At the time of the 9/11 attacks, the S&P 500 had been in a general decline trend for about 500 days. The stock market was subsequently closed for the better part of a week (given that the World Trade Center collapse happened mere blocks from the actual Wall Street, there wasn’t a lot of choice in the matter). When the market reopened, there was a short-term sharp sell-off before the market continued a slower and steadier decline (you can hear the cheers now, “yay for us! the market is going down less this week than last”). From the top in March 2000 to the bottom in October 2002, the market declined for over 900 calendar days. Nine. Hundred. Days. Two and a half years of down markets. These were not pleasant times to be an investor.

Here is the instructive part: the total return of the S&P 500 is up approximately 1300% from that low point in 2002 until today. Why is that? The simplest answer is that earnings growth drives the stock market, and earnings have grown as well, up over 1100% over that same period of time (source: YCharts).

How does this tie into today’s market environment? There’s a lot of noise right now, there’s a lot of negative sentiment.

And yet, as long-term investors, we need to take the long view. Long-term investors pick an investment strategy and stay the course.

You’ve been wondering how I’m going to connect the dots and tie this to the band Rush. The current Rush tour is probably their last. Their original ‘farewell’ tour was eleven years ago, iconic drummer Neil Peart passed away in 2020, and lead singer Geddy Lee is now 73. One of their iconic songs, Free Will, features the powerful lyric: "I will choose free will."

As corny as it sounds, as investors we have control over our emotions, and we can choose not to panic, not to give in to our desire to sell everything and stuff the mattress. Letting the noise dictate your decisions - panicking, trying to time the top or bottom, or attempting to trade around daily headlines - is defaulting away your control. And more importantly, choosing calm, staying disciplined, and actively saying "I will choose free will" over emotional reactivity is a conscious choice. And historically, it's the right one.

Lightning Round

Before we wrap up, it’s worth touching briefly on a few other items making news:

The "$5,000 Trump Dividend": You may have heard Trump float a proposal to pay every adult American $5,000 if Republicans hold the House and Senate in the midterms. Setting the politics aside, the math is significant: independent estimates put the cost at roughly $1.25 to $1.3 trillion, added to the debt in one stroke. Given everything above about bond yields, that matters.
California’s Prop 40: On November 3, Californians vote on the so-called “Billionaire Tax,” a one-time 5% tax on the net worth of roughly 200 of the state’s wealthiest residents. My concern isn’t for the billionaires. It’s for the precedent. Once the state establishes that it can tax wealth itself, the next question is how low the threshold goes: $100 million, then $10 million, then $1 million, which in the Bay Area describes plenty of retirees with a paid-off house and a Rollover IRA. If budgets need balancing, income-based approaches are the more predictable path.
Trump Accounts: your kids may already have one. If you have a child under 18 with a Social Security number, the Treasury Department has likely already opened a Trump Account in their name. You didn’t need to sign anything or file an application. The account isn’t fully yours to manage until you claim it, which you can do through the program’s app or the Treasury website. Once you do, you act as custodian until your child turns 18. If you have children or grandchildren in the family, it’s worth a few minutes to claim the account and talk with me about whether, and how, it fits alongside a 529 or other savings you already have.

Looking Ahead

Markets will always give you a reason to worry. Whether it's soaring bond yields, low consumer confidence, housing affordability crunches, or political crosswinds, uncertainty is simply the price of admission for long-term investing returns.

Don't let market volatility make decisions for you by default. Stay disciplined, keep your eyes on your long-term plan, and remember that choosing free will over panic in a noisy world is the most powerful financial choice you can make.

As always, if you want to chat about your portfolio, your plan, or what all of this means for your specific situation, I am here.

I continue to be honored and humbled by the trust you put in me.

All the best,

Chris Duke
October 13, 2026

DISCLOSURES

This is being provided for informational purposes only and should not be construed as a recommendation to buy or sell any specific securities. Past performance is no guarantee of future results, and all investing involves risk. Index returns shown are not reflective of actual performance nor reflect fees and expenses applicable to investing. One cannot invest directly in an index. The views expressed are those of Chris Duke and do not necessarily reflect the views of Mutual Advisors, LLC, or any of its affiliates

Investment advisory services are offered through Mutual Advisors, LLC, DBA Context Wealth, an SEC-registered investment adviser.