Quarterly Market Update

Key Market Drivers

Global Rate Hikes — September

Major central banks moved in a more restrictive direction this quarter as policymakers continued to prioritize inflation control and reinforce a higher-for-longer interest rate environment. The European Central Bank (ECB) raised its deposit rate to 2.5% on September 10th, followed by the Federal Reserve (Fed) lifting rates by 25 basis points to a 3.75%–4.0% range, and the Bank of Japan (BOJ) increasing its policy rate to 1.25%.¹

While the drivers varied across regions, the common theme was a continued focus on price stability, with policymakers signaling a willingness to keep monetary policy restrictive until inflation shows clearer evidence of return sustainably to target.

This chart shows the year-to-date (YTD) yields on the 10-year Treasury Note.

A major market milestone occurred during the quarter as the 10-year U.S. Treasury yield climbed above 5%, reaching their highest level since 2007². Investors reacted to persistent inflation pressures, higher energy prices, and expectations that interest rates could remain elevated for longer than previously anticipated. The move pushed borrowing costs higher and remained an important driver of volatility across global markets.

Earnings Breadth & Resilience

Corporate earnings remained strong during the quarter, with S&P 500 companies reporting their strongest earnings growth since Q4 2021. Importantly, earnings growth broadened beyond a small group of technology companies, with most sectors expected to deliver double-digit profit growth in 2026³, providing continued support for equity markets.

Geopolitical Risks & Trade Tensions

Geopolitical uncertainty remained elevated during the quarter as conflict in the Middle East contributed to higher energy prices and renewed inflation concerns. At the same time, trade tensions between the United States and Canada rose after the U.S. imposed tariffs on approximately C$27.6 billion of Canadian goods⁴, prompting Canada to respond with retaliatory measures of its own.

CWB YTD Excess Return Highlights

Asset Allocation

This section highlights excess return generated from portfolio positioning across asset classes, sectors, regions, or duration relative to the benchmark.

The Asset Allocation drivers below depict CWB Level 3 portfolios. Level 3 pertains to a specific risk tolerance. To view your current risk tolerance and current asset allocation, log in to your CWB portfolio dashboard.

This chart shows the performance of Emerging Markets year-to-date (YTD) compared to Korea, India, China, and Taiwan.

Emerging market equities have been a strong performer this year, supported by the ongoing AI driven semiconductor supercycle. Much of the strength has been concentrated in Taiwan and Korea, where technology companies have benefited from heightened demand for memory chips and other AI infrastructure components.

This chart shows quarter-to-date and year-to-date returns for the Bloomberg Municipal Bond indices across various maturity ranges.

Despite higher yields for munis with longer maturities, rising rates have weighed on returns. The muni portion of the portfolio that has exposures longer out on the curve has detracted over the year.

Manager Selection

In simple terms, Manager Selection means choosing a specific human fund manager or investment team to hold your money instead of just tracking the market average with a basic index fund.

This section highlights excess return generated from the performance of underlying investment managers or strategies relative to their respective benchmarks.

Manager Selection drivers are shown for CWB Dynamic Level 3 portfolios. CWB Dynamic portfolios take a blended approach, pairing passive investments for low-cost market exposure with active managers for an additional alpha source.

This chart shows year-to-date, one-year, and three-year returns for the Baird Core Intermediate Municipal Bond Fund compared to the Bloomberg Municipal 1-15 Year Index.

The Baird Core Intermediate Municipal Bond Fund (BMNIX) is a higher quality, defensive Muni strategy looking to remain duration neutral relative to its benchmark. The fund has outperformed the Bloomberg Muni 1-15 YR index by 1.30% for the year to date period. Over the year, an overweight to credit risk has been particularly additive.

This chart shows year-to-date performance alongside overweight and underweight benchmark positioning across India, Taiwan, and Korea for the Baron Emerging Markets Fund.

Baron Emerging Markets (BEXIX) is an all-cap, growth strategy that targets high quality, high barrier to entry businesses based on bottom-up fundamental research. Despite the fund returning 16.1% YTD through 9/30/2026, Baron underperformed the MSCI Emerging Markets Index by 7.3%. The fund’s overweight in India and stock selection within Korea were the main detractors.

Performance

The gross returns include all fees other than Citi's advisory fee. The net returns are the gross returns less the highest fee (0.60%) that can be charged for the portfolio.

Performance is shown below for Level 3 portfolios. If you would like to see how your account is performing, please login to your CWB dashboard.

Portfolio Positioning

This chart shows the positioning breakdown between fixed income, equities, and cash for all Level 3 Citi Wealth Builder portfolios.

Recent Portfolio Changes

• In late August, the MACS team implemented investment changes to the cash and fixed income allocations across applicable portfolios. These changes were designed to improve the incremental yield of the cash allocation, increase exposure to active management opportunities where PMs have conviction, and better position portfolios given the current interest rate and yield environment.
• Key updates included redeploying excess cash balances into ultra-short duration strategies with more attractive income potential, increasing allocations to select active fixed income managers with strong credit selection track records, and refining duration exposure within municipal bond portfolios.