Market Viewpoints
Fall 2026
By Keith Bonjour, CFP®
Senior Vice President, Portfolio Manager
The third quarter of 2026 ended with the U.S. economy continuing to show resilience despite higher interest rates, persistent inflation concerns, and market volatility. Economic growth remained positive throughout the quarter, supported by healthy consumer spending, ongoing business investment, and expansion in artificial intelligence and technology-related industries. Although higher borrowing costs began to affect certain sectors of the economy, overall activity remained stronger than many economists had anticipated at the beginning of the year.
Inflation remained one of the most closely watched economic indicators during the quarter. Although conditions improved in several areas, inflation remained well above the Federal Reserve’s long-term 2% target. Higher energy prices, transportation costs, and lingering supply-side pressures contributed to elevated inflation readings. Consumer prices increased 3.4% over the twelve months ending in August, while core inflation remained at 2.4%. Although inflation has moderated significantly from the highs experienced several years ago, recent data suggest that the final phase of returning inflation to target may prove more challenging than previously anticipated.
Labor market conditions remained stable during the quarter. Employment growth continued at a moderate pace, and unemployment remained near the low-to-mid 4% range. Hiring activity continued to slow compared with prior years, but widespread layoffs did not materialize. Wage growth remained positive, helping support consumer spending and contributing to the economy’s continued expansion. Overall, labor market conditions appeared consistent with a gradual normalization rather than a larger economic slowdown.
A significant development during the quarter was the Federal Reserve’s decision to raise interest rates in September. After maintaining the federal funds rate at 3.50%-3.75% through the first half of the year, policymakers increased rates by 0.25% to a target range of 3.75%-4.00%. The decision reflected concerns that inflation remains above target and that economic growth continues to be sufficiently strong to withstand tighter monetary policy. Updated projections indicated that policymakers expect interest rates to remain elevated for longer than previously anticipated, reinforcing the market’s “higher-for-longer” outlook.
Equity markets generated modest gains during the quarter despite increased volatility. Large-cap technology companies and firms benefiting from continued investment in artificial intelligence remained important drivers of market performance. Corporate earnings exceeded expectations, supporting stock prices even as interest rates and bond yields moved higher.
Investors became more cautious during September in response to rising Treasury yields and uncertainty surrounding future Federal Reserve actions, however the S&P 500 still finished the quarter with a positive return.
The bond market faced a more challenging environment as interest rates moved higher throughout the quarter. Treasury yields rose as investors adjusted expectations for future Federal Reserve policy and the possibility that inflation could remain elevated longer than expected. The 10-year Treasury yield reached its highest level in more than two decades during September, placing downward pressure on bond prices. However, higher yields continue to create attractive income opportunities for investors and reinforce the value of fixed income as a source of diversification and portfolio stability.
As we move into the final quarter of 2026, investors continue to monitor several key risks, including inflation trends, Federal Reserve policy decisions, geopolitical developments, elevated energy prices, and the overall pace of economic growth. Although market volatility may persist as investors evaluate these factors, continued economic expansion, healthy corporate earnings, and ongoing innovation in artificial intelligence provide reasons for cautious optimism. We continue to recommend maintaining a disciplined, long-term investment approach, recognizing that periods of uncertainty are a normal part of investing.
If you anticipate any short-term cash needs, please contact us so we can manage distributions proactively and help protect your portfolio from potential volatility.
Thank you for your continued trust. We remain committed to making prudent investment decisions as we navigate an evolving market landscape.