Quarterly Market Review
The third quarter was a volatile yet generally positive period for Wall Street. The NASDAQ and the S&P 500 each advanced, while the Dow and the small caps of the Russell 2000 lagged. During the third quarter, the major indexes reached record levels in August and early September, although that favorable performance masked an underlying shift to large technology and AI companies, while other sectors largely underperformed. The divergence between benchmark indexes and the broader market indicates that the quarterly market gain was narrowly driven and not representative of the average large company. Overall, the stock market in the third quarter was dominated by large-cap technology and AI stocks, while market breadth deteriorated. Energy was the strongest-performing sector. Treasury yields rose sharply. Higher crude oil prices revived inflation concerns. Corporate earnings remained strong. All of these factors helped create a scenario where growth of major market indexes were not indicative of broader stock market health.
Fixed-income investors faced considerable tumult during the third quarter. Treasury yields rose sharply as markets moved away from expectations of monetary easing toward the likelihood of additional Federal Reserve tightening. Higher oil prices, a somewhat resilient economy, and persistent inflation were the primary factors in the bond selloff. By the end of the third quarter, 10-year Treasury yields had risen about 85.0 basis points, the largest quarterly increase in several years. The increase in bond yields coincided with a drop in bond prices.
Despite persistent inflation, high energy costs, tighter financial conditions, and geopolitical tensions, the U.S. economy showed surprising resilience. Inflationary pressures stabilized somewhat in the third quarter. Energy prices in general, and gasoline prices in particular, rose during the third quarter. Shelter prices appeared to wane in July, only to move higher in August. Food prices were comparatively moderate throughout the summer.
International Markets
European equity markets began the third quarter of 2026 from a position of strength with several notable indexes nearing or surpassing record highs. However, the third quarter proved volatile with a rotation between cyclical growth, financials, technology, and defensive sectors. Throughout the quarter, European equity markets were sensitive to energy prices, European Central Bank monetary policy, Middle East developments, corporate earnings, and AI/technology performance. Asian equity markets also experienced volatility in the third quarter. Second-quarter momentum waned as technology stocks, particularly semiconductor shares, endured significant corrections. By the end of September, the STOXX Europe 600 Index fell 1.4% for the month and 0.4% for the third quarter; the United Kingdom's FTSE fell 1.3% from July but increased 1.3% in the third quarter; Japan's Nikkei 225 Index gained 3.8% for the month but declined 5.3% in Q3; and China's Shanghai Composite Index dropped 2.5% in August and 6.6% for the quarter.
On a Personal Note
Jeff started a new photography class and is looking forward to learning some new skills. Drew visited his oldest daughter at Auburn for family weekend. It was also a college visit for his youngest daughter as she begins her college application process. It was a great weekend having everyone together. Chris’s September was filled with all of the fall high school events including Homecoming. Everyone seemed to have a great time. Lisa and her family spent a fun weekend at Hocking Hills, staying in a treehouse. They did lots of hiking, enjoyed plenty of laughs around the firepit, and made some great family memories together. Thankfully, everyone survived the hiking – and the treehouse! Sam spent a weekend camping with his family. Some time outdoors, good company, and cooler weather was a great way to welcome the new season! Taylor went on a bachelorette trip to Lake Cumberland with some high school friends. This was her first time away overnight from her daughter, so she did her best to have fun and not worry too much – turns out baby had a blast with her dad and fun was had by all!
