October 16, 2026 · Economic commentary
Quarterly Review + Market Outlook
Market review
The S&P 500 gained 2.3% in the third quarter and set record highs, though U.S. stocks largely traded sideways over the summer. U.S. smaller-cap stocks fell 7.2%, developed international stocks rose 0.8% and emerging markets slipped 0.4%, while remaining up more than 23% for the year. A stronger U.S. dollar weighed on European stocks, while Japanese stocks gained about 6% in dollar terms. Managed futures returned 6.1% for the quarter.
Beneath the headline index, sector results diverged sharply. Energy (+17.2%) and technology (+7.2%) led the quarter, while rate-sensitive sectors such as utilities, industrials and real estate lagged. Only energy and technology are ahead of the S&P 500's 12.7% year-to-date return.
The Fed, inflation and rising yields
The quarter's main story was in the bond market. The Federal Reserve raised rates on September 16 to a range of 3.75%–4%, its first hike in more than three years. The 10-year Treasury yield closed the quarter at 5.29%, near its highest level since 2007, and core bonds fell 3.5% — their worst quarter since 2022.
The slides compare the Fed's own projections with market pricing, which anticipates more tightening than the committee has signaled. They show that Fed officials see fewer risks to growth and employment but remain uncertain about inflation, and that above-target inflation has spread well beyond energy. The presentation also notes that today's higher yields resemble the 1990s and 2000s more than the unusually low-rate 2010s, that the move has come mainly in real yields rather than long-term inflation expectations, and that record debt issuance by large technology companies funding AI is competing with Treasury borrowing.
Technology and volatility
Technology stocks fell about 18% in March and about 14% in July, recovering to new highs each time; the sector finished the quarter up 28.4% for the year. Strong earnings growth has brought the sector's forward price-to-earnings ratio below its five-year average.
The closing slide contrasts elevated bond-market volatility with calmer stock markets, suggesting the gap is unlikely to persist. Read the complete slide deck for the charts, their source dates and all original disclosures. Historical returns and projections are not guarantees of future results.
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Disclosures
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Disclosures: This material is for informational purposes only and does not constitute investment advice or a recommendation. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.