The third quarter of 2026 saw a historic climb in interest rates, a new Federal Reserve rate hike cycle, and oil prices surging back above $100 a barrel. Given this combination of developments, many investors might have assumed that equity markets would struggle heading into year-end. Yet the S&P 500 notched its 27th record high of the year amidst continued strong corporate earnings, rewarding those who have been able to look past the headlines and remain invested.
In this article, James Liu, CEO of Clearnomics, walks through seven charts to help advisors put the quarter’s headlines into context for clients, from the historic climb in bond yields, to what resurgent AI-related spending means for corporate earnings and productivity.
Interest rates have been the biggest story of the quarter, with the 10-year Treasury yield touching 5.30% in September, a level not seen since 2002, while the 30-year reached 5.64%. Unlike 2022, when rates climbed largely due to runaway inflation (hurting stocks and bonds at the same time), today’s increases are being driven primarily by rising real (inflation-adjusted) yields – reflecting economic growth and heavy AI-related capital.
Inflation remains part of the picture as well, with headline CPI at 3.4% year-over-year and core CPI at 2.4%, both still driven largely by oil prices. This gave the Fed room to raise its target rate to a range of 3.75% to 4.00% in September – its first hike in three years – though new Fed Chair Kevin Warsh has also signaled a preference for stepping back from the central bank’s traditional practice of forward guidance.
Corporate earnings, meanwhile, have been equally strong this quarter. S&P 500 earnings grew approximately 29% year-over-year, a third consecutive quarter of growth above 25% and well ahead of the historical average of around 8%, with all 11 S&P 500 sectors posting gains rather than returns being concentrated in a handful of mega-cap technology names.
Oil and copper were also in focus this quarter, with Brent crude climbing back above $100 a barrel amidst continued disruptions near the Strait of Hormuz, and copper rallying to all-time highs on surging demand tied to AI data centers.
With the midterm elections approaching in November, clients may naturally wonder whether a shift in Congressional control could affect their portfolios. History, though, suggests that markets have advanced under virtually every combination of political leadership over the past century, and that corporate earnings, interest rates, and other long-term trends are a far stronger indicator of market performance than one party or the other having political control.
Anticipated public offerings from AI leaders such as OpenAI and Anthropic have kept investors focused on a familiar question: whether today’s level of AI infrastructure spending will eventually be matched by real productivity gains. And although equity market breadth has declined in recent months, a wide range of asset classes are positive year-to-date – an opportunity for advisors to demonstrate the value of a well-diversified portfolio throughout an eventful year.
Ultimately, the key point is that underlying fundamentals, such as real economic growth and broad-based earnings strength, are what typically drive long-run returns, even amidst headlines about rates, the Fed, and oil.
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And if you want to go deeper on this topic, hear directly from the author on the Financial Advisor Technician podcast. |
