Equity markets advanced in an otherwise lackluster third quarter of 2026 despite periods of sharp volatility, pushing major indices to new record highs. The S&P 500 gained +2.30% (+12.75% YTD), and the NASDAQ 100 rose +0.58% (+21.01% YTD), while the small cap Russell 2000 declined -7.23% (+13.71% YTD) as rising Treasury yields pressured debt sensitive companies (YCharts.com). Market breadth remained narrow, with only four of eleven S&P 500 sectors posting positive returns. Energy led by a wide margin on the back of surging crude prices, followed by technology and healthcare, while utilities and industrials saw notable weakness due to higher yields and elevated diesel costs.

The quarter was shaped by a push and pull between solid underlying fundamentals and mounting macroeconomic challenges. Early concerns about artificial intelligence valuations faded as strong earnings and upbeat revenue guidance from major tech companies fueled a late July rally. At the same time, geopolitical tensions intensified after the US reinstated a blockade on the Strait of Hormuz, followed by Houthi disruptions near the Bab el Mandeb Strait and pipeline sabotage in Saudi Arabia. These events drove Brent crude above $100 per barrel, lifting broad commodities by +25.10% and crude oil by +30.16%. Persistent inflation and elevated energy prices prompted a 25-basis point rate hike from the Federal Reserve in September, pushing the 10-year Treasury yield to a 19 year high and sending the Bloomberg US Aggregate Bond Index down -3.51%.

Even with these headwinds, the market’s advance continues to be supported by resilient economic growth and historically strong corporate earnings. Robust labor data (until the September print), steady consumer spending, and expanding business activity lifted the Atlanta Fed’s GDPNow estimate to 5.0% in late September. Upward revisions to 2027 S&P 500 earnings expectations also helped keep valuations below their five-year average (Yahoo! Finance, “Prediction: The S&P Finishes Above 9,000…,” 9.24.26). As we enter the fourth quarter, geopolitical risks, elevated energy costs, and shifting interest rate expectations remain key challenges, but the foundation of solid corporate performance and economic strength provides meaningful support for the moment.

Managing through volatility requires patience and discipline. Maintaining a diversified portfolio aligned with your goals and risk tolerance remains the most effective approach, in our view. We welcome the opportunity to review your holdings and address any questions you may have as we head to finish out the year.

Source: Index proxies based on dividend adjusted ETF time-series data from Unicorn-Data-Services. Data considered dependable, but not guaranteed. Past performance is no guarantee of future performance or profitability. Statements herein do not constitute individual investment advice – please speak with your advisor about your particular situation.