MARKETS AT A GLANCE
The third quarter brought mixed results for U.S. stocks, as enthusiasm for artificial intelligence and strong corporate earnings supported larger companies. At the same time, rising interest rates weighed on other areas of the market.
While the S&P 500 and Nasdaq finished higher, smaller companies faced a more challenging environment, with the Russell 2000 Index dropping -7.23%. It was a challenging quarter for the bond market. The Bloomberg US Aggregate Bond Index declined -3.51%. Rising rates were especially unkind to the muni market, with the Bloomberg Municipal Bond Index down -6.35%.
BEYOND THE HEADLINES: A DIVIDED MARKET
Artificial intelligence remained a major theme in the markets throughout Q3. Large technology companies benefited from continued investment in AI infrastructure and optimism about future growth. Their strong performance helped lift major indexes. Meanwhile, smaller companies and businesses that rely more heavily on borrowing faced pressure from rising interest rates.
This is a reminder that market headlines don’t always tell the full story. A diversified portfolio provides exposure to different areas of the market, helping reduce reliance on the performance of any single company, industry, or investment trend.
INFLATION AND INTEREST RATES TAKE CENTER STAGE
Inflation remained a key concern during the quarter, particularly as renewed conflict in the Middle East pushed energy prices higher. Rising fuel costs affect more than what consumers pay at the pump. They also increase the cost of transporting goods, producing food, and operating businesses, potentially leading to higher prices throughout the economy.
In September, the Federal Reserve raised its benchmark interest rate by 0.25 percentage points, bringing the target range to 3.75%–4.00%. This marked the Fed’s first rate increase since 2023 and reflected ongoing concerns about inflation remaining above its 2% target. The Consumer Price Index rose to 3.7% in September, further validating the decision to increase the fed funds rate, and increasing the chances of additional rate hikes at the October and December Fed meetings.
Higher interest rates have implications beyond the stock market. Borrowing becomes more expensive for households and businesses, while savings accounts, money market funds, and newly issued bonds may offer more attractive yields. At the same time, rising yields can put downward pressure on the value of existing bonds.
AN ECONOMY SHOWING RESILIENCE
Despite persistent inflation and higher borrowing costs, the U.S. economy continued to demonstrate resilience. Consumer spending remained relatively strong, and business investment, particularly in technology and AI-related infrastructure, helped support economic activity. The Atlanta Fed’s GDPNow model recently estimated GDP growth around 3.7% for Q3.
At the same time, hiring slowed, suggesting that some employers were becoming more cautious. Unemployment rose to 4.2% in September, up from the previous 4.1% in August. However, the labor force participation rate increased to 61.8%. Nonfarm payroll growth was only 29,000 in September, well short of expectations, and July and August numbers were revised downward. These mixed signals present a challenge for the Federal Reserve as it works to bring inflation under control without unnecessarily slowing economic growth.
LOOKING AHEAD TO Q4
As we enter the final quarter of 2026, inflation, employment trends, corporate earnings, and Federal Reserve policy will remain important areas to watch. The upcoming midterm elections may also bring uncertainty as investors consider the potential implications for tax policy, government spending, and regulation.
While these developments may influence short-term market performance, they don’t necessarily call for changes to a long-term investment strategy. We remain focused on helping our clients make thoughtful financial decisions that support their long-term goals.
As we approach the end of another year, please remember we are always here as a resource for you. Whether you’re preparing for a major life change, revisiting your priorities, or planning for the year ahead, we’re here to provide any guidance and support you need along the way.
Warmest regards,
Your team at Platt Wealth Management