Federated Hermes: Weekly Markets Wrap Up 1 October 2026
In this week's markets wrap-up, our investment teams explore what the latest Federal Reserve rate decision tells us about the strength of the US economy and the inflation outlook, and Turkey's liquidity crisis.
Debbie Cunningham, CIO for Global Liquidity Markets at Federated Hermes
Don’t fight the 'Fred'
The ring-side doctor has treated many investors foolhardy enough to challenge the Federal Reserve. Some manage to win a round with a contrarian trade; yet in the end, they usually find themselves on the canvas. But monetary policymakers themselves face an undeniable brute in Fred. Well, really “FRED”, the Federal Reserve Economic Data depository.
Maintained by the Federal Reserve Bank of St. Louis, the depository is a massive database with macroeconomic series ranging from the well-known, such as GDP and inflation prints, to the obscure, such as prices of sliced bologna or grape jelly. While most data can be interpreted to fit an agenda, the 800,000-dataset gorilla of this database brushes aside such attempts.
This is the context, and the reason behind, the Fed’s rate hike in September. Chair Kevin Warsh and his colleagues on the Federal Open Market Committee felt pressure from the White House, the bond market and price-conscious consumers, but ultimately had to kowtow to the blunt data revealing the economy is warm enough to sustain inflation above the 2% target. They had little choice but to lift the band to 3.75-4.00%. You must give Chair Warsh credit – he was not nominated to raise rates yet did what had to be done.
Jon De Vos, Senior Investment Analyst for Global Emerging Markets at Federated Hermes
Turkey's liquidity crisis
Recent turmoil in Turkey’s stock market came after a period in which many investment funds invested in thinly traded stocks to push prices higher and boost returns. This rapidly unwound a few weeks ago after tighter regulatory rules were introduced. This triggered redemptions that some funds were unable to meet. There clearly was not sufficient oversight, but the authorities have acted swiftly to contain the fallout and shore up confidence in the market.
The liquidity crisis has mostly centred on small-cap and illiquid stocks with small free floats, while Turkey’s leading equities are predominantly industrials, banks and energy companies. Foreign investors had already retreated amid high inflation and political risk, with foreign ownership falling to less than 30% in recent years, compared with around 60% in the decade before the inflation crisis.
While this represents another misstep that could impair the attractiveness of Turkish equities, we believe an immediate MSCI downgrade to Frontier Market status is unlikely, provided the authorities continue demonstrating that they are addressing the identified shortcomings.