The third quarter of 2026 noticed a historic climb in rates of interest, a brand new Federal Reserve charge hike cycle, and oil costs surging again above $100 a barrel. Given this mixture of developments, many traders may need assumed that fairness markets would battle heading into year-end. But the S&P 500 notched its twenty seventh file excessive of the yr amidst continued sturdy company earnings, rewarding those that have been in a position to look previous the headlines and stay invested.
On this article, James Liu, CEO of Clearnomics, walks via seven charts to assist advisors put the quarter’s headlines into context for shoppers, from the historic climb in bond yields, to what resurgent AI-related spending means for company earnings and productiveness.
Rates of interest have been the most important story of the quarter, with the 10-year Treasury yield touching 5.30% in September, a stage not seen since 2002, whereas the 30-year reached 5.64%. Not like 2022, when charges climbed largely attributable to runaway inflation (hurting shares and bonds on the identical time), as we speak’s will increase are being pushed primarily by rising actual (inflation-adjusted) yields – reflecting financial development and heavy AI-related capital.
Inflation stays a part of the image as effectively, with headline CPI at 3.4% year-over-year and core CPI at 2.4%, each nonetheless pushed largely by oil costs. This gave the Fed room to boost its goal charge to a spread of three.75% to 4.00% in September – its first hike in three years – although new Fed Chair Kevin Warsh has additionally signaled a desire for stepping again from the central financial institution’s conventional apply of ahead steerage.
Company earnings, in the meantime, have been equally sturdy this quarter. S&P 500 earnings grew roughly 29% year-over-year, a 3rd consecutive quarter of development above 25% and effectively forward of the historic common of round 8%, with all 11 S&P 500 sectors posting positive factors quite than returns being concentrated in a handful of mega-cap know-how names.
Oil and copper have been additionally in focus this quarter, with Brent crude climbing again above $100 a barrel amidst continued disruptions close to the Strait of Hormuz, and copper rallying to all-time highs on surging demand tied to AI information facilities.
With the midterm elections approaching in November, shoppers might naturally ponder whether a shift in Congressional management might have an effect on their portfolios. Historical past, although, means that markets have superior beneath just about each mixture of political management over the previous century, and that company earnings, rates of interest, and different long-term traits are a far stronger indicator of market efficiency than one get together or the opposite having political management.
Anticipated public choices from AI leaders akin to OpenAI and Anthropic have stored traders centered on a well-recognized query: whether or not as we speak’s stage of AI infrastructure spending will ultimately be matched by actual productiveness positive factors. And though fairness market breadth has declined in current months, a variety of asset lessons are optimistic year-to-date – a possibility for advisors to reveal the worth of a well-diversified portfolio all through an eventful yr.
Finally, the important thing level is that underlying fundamentals, akin to actual financial development and broad-based earnings power, are what usually drive long-run returns, even amidst headlines about charges, the Fed, and oil.
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And if you wish to go deeper on this matter, hear straight from the writer on the Monetary Advisor Technician podcast. |
