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Markets were volatile again in the third quarter but stocks still managed to advance, as strong corporate earnings growth and a resilient economy pushed the major indices to new all-time highs despite a rebound in oil prices and a surge in U.S. Treasury yields.The third quarter started with moderate volatility as, during an otherwise strong Q2 earnings season, doubts began to emerge about valuations of AI infrastructure companies, which had powered markets higher throughout Q2. Very aggressive spending plans and related concerns about the sustainability of demand for AI components pressured market leaders such as Micron and Nvidia, and tech companies linked to AI declined sharply for most of July as investors worried the stocks had come too far, too fast. Those AI-related concerns were then compounded by a sudden resumption of fighting between the U.S. and Iran as, on July 13, the United States re-imposed a blockade on the Strait of Hormuz. That began a multi-day back and forth of attacks between the U.S. and Iran, and the collapse of the ceasefire boosted oil prices, which further weighed on stocks. The S&P 500 declined modestly for most of the month, although in late July tech giants Microsoft and Amazon posted strong earnings, and most importantly, made positive comments about revenues generated from AI investments. Those comments pushed back on the AI concerns from earlier in the month and triggered aggressive money flows back into tech and AI-related stocks. The S&P 500 rallied hard during the final days of July and recouped almost all of the monthly losses, finishing little changed.The tech-led market rally from late July continued in early August, as the S&P 500 rose on a combination of AI-related tech outperformance and as the reciprocal attacks between the U.S. and Iran stopped. Fueled by AI enthusiasm and some encouraging growth and inflation data, the S&P 500 hit a new all-time high on August 12. Following those new highs, however, markets were forced to face the reality that stubbornly high inflation would likely cause the Federal Reserve to hike interest rates, and Fed Chair Warsh said as much at the Jackson Hole Economic Symposium. Expectations of rate hikes stopped the early August rally while geopolitics again impacted markets late in the month. The Houthis, an Iran-backed militia group, advanced to the Yemeni coast and threatened to harass ships exiting the Bab el-Mandeb Strait, further complicating global oil logistics. Oil prices rose as a result and that pulled Treasury yields higher, and those forces weighed on the S&P 500, although the index still finished the month with a 2.7% gain. The late-August volatility continued in early September, as the Houthis made a lightning advance up the Yemeni coast (giving them more ability to harass tankers) while Iranian-aligned groups sabotaged the East-West pipeline in Saudi Arabia, further reducing oil flows from the Middle East. The Fed, meanwhile, raised interest rates 25 basis points in September and signaled more rate hikes were likely. That news pressured stocks and boosted bond yields, as the 10-year Treasury yield surged to a 19-year high in late September on a combination of strong economic data, higher oil prices and Fed rate hike expectations. Higher yields pressured stocks late in the month and the S&P 500 finished with a slight loss.   In sum, the third quarter contained its share of disconcerting geopolitical headlines and market volatility, but strong earnings growth and resilient economic growth offset the headwinds of higher oil prices, Fed rate hikes and rising Treasury yields.    Third Quarter Performance ReviewThe three major influences on the markets in the third quarter were rising oil prices, surging Treasury yields and AI enthusiasm, and those factors heavily influenced market internals and performance. By market capitalization, small caps badly lagged large caps in the third quarter and declined outright, as surging yields weighed on small caps while large caps benefitted from tech and energy rallies tied to AI and higher oil prices.From an investment style standpoint, growth again handily outperformed value, thanks primarily to strength in the tech sector. While volatile, tech-heavy growth styles benefitted from a continued AI rally while value sectors were pressured by concerns about rising yields and higher oil prices. On a sector level, performance was mixed in Q3 as only four of the 11 S&P 500 sectors finished the quarter with positive returns. Surging oil prices and AI enthusiasm were the main drivers of sector performance in Q3 as energy was, by far, the best-performing sector in the S&P 500. Oil and energy-related stocks surged courtesy of dramatically higher oil prices throughout the quarter. Other sector outperformers included tech, which benefitted from ongoing AI enthusiasm (especially late in the quarter) and healthcare, as a series of high-profile successful drug trials boosted pharmaceutical stocks. Turning to sector laggards, the influence of higher yields was evident, as utilities were, by far, the worst-performing sector in the S&P 500 and logged a material decline. Rising bond yields make the high dividends in utility stocks less attractive to investors and money rotated from utilities into different parts of the market throughout the quarter. Industrials also logged a materially negative return for the quarter thanks to concerns that higher rates could negatively impact economic growth while surging diesel costs pressured transportation companies. International market performance was also influenced by tech/AI as both foreign developed and emerging markets lagged the S&P 500. Foreign developed markets did log a marginally positive return for the quarter, but foreign indices have a smaller allocation to AI-related tech shares and that weighed on performance. Emerging markets, meanwhile, declined slightly as a stronger dollar pressured those investments.   Switching to fixed income markets, the leading benchmark for bonds (Bloomberg U.S. Aggregate Bond Index) declined sharply in the third quarter as rising inflation concerns pressured multiple types and classes of fixed income. Looking deeper into the bond markets, shorter-duration bills logged a modestly positive return for Q3 and handily outperformed longer-duration bonds, as inflation concerns weighed on longer-dated bonds. Turning to the corporate bond market, both investment grade and lower quality, but higher-yielding bonds posted negative quarterly returns. High-yield bonds relatively outperformed, however, as resilient economic growth and higher inflation metrics prompted investors to reach for higher yield despite greater credit risks. Fourth Quarter Market OutlookAs we begin the final quarter of the year, there are headwinds on markets via the ongoing U.S./Iran conflict, surging global bond yields, and the threat of more Fed rate hikes. However, it’s important to realize there are less-exciting, but still-powerful, forces supporting this year-to-date rally in the form of 1) Impressive economic growth, and 2) Historically strong corporate earnings growth, and those two substantial positives can overcome macroeconomic headwinds, as they did in the third quarter.   Starting with economic growth, it remained strong and accelerated during the third quarter. Readings from the labor market were very healthy, consumer spending remained strong despite higher prices and activity in the manufacturing and service sectors of the economy accelerated. The Atlanta GDP Now forecast showed GDP growth of 5.0% in late September and the reality is that strong economic performance provides a formidable foundation for the YTD rally. On earnings, 2027 S&P 500 earnings estimates were revised higher, again, following the Q2 earnings season and annual earnings growth continued to trend far above historical averages. Beyond reflecting increased corporate profits (which are good for stock prices), surging earnings expectations have helped to keep market valuations reasonable, as the S&P 500 traded below the five-year average for valuation through the third quarter despite the strong YTD rally. Bottom line, while many of the headlines have focused on the threats to the rally, there are powerful positive forces supporting stocks and risks assets more broadly. That said, there are legitimate risks to the market that must be monitored closely in the fourth quarter. Starting with geopolitics, the stalemates in the U.S./Iran and Russia/Ukraine wars continue, and they are keeping oil, gas and diesel prices elevated. The longer that continues, the greater the headwind it will become on economic growth. Positively, any real diplomatic progress in either theatre that allows oil or diesel to flow more freely will result in lower energy prices and that should be a significant, positive catalyst for markets.   Turning to Treasury yields, the 10-year yield did hit a 19-year high during the third quarter and that is a headwind on economic growth. However, much of the rise in the 10-year yield can likely be attributed to rising oil prices, and if we see a decline in oil, then yields will likely follow and reduce the headwind on the economy.Regarding the Federal Reserve, investors have priced in additional rate hikes in 2026 and 2027, but limited rate hikes that help contain inflation will be a longer-term positive. Additionally, if inflation metrics ease during the fourth quarter, then rate hike expectations will be reduced and that will put downward pressure on Treasury yields. Finally, concerns remain that the AI data center boom will turn “bust” and hurt economic growth. Those fears are understandable, especially for older investors who remember the “dot com” era. However, important differences exist between the two periods and there were signs in the third quarter that AI investments were already beginning to generate revenue. If there is more evidence of that in the fourth quarter, then investor concerns about the sustainability of the AI buildout will ease and tech will likely lead markets higher once again.In sum, we begin the final quarter of 2026 with a market facing challenges in the form of geopolitical risks, higher bond yields and concerns about the sustainability of the AI data center boom. But the positives of a resilient economy and historically strong earnings growth are powerful, and despite negative headlines, the reality is the market remains on solid footing.    At Janney Montgomery Scott, we are committed to helping you effectively navigate this unique investment environment. Successful investing is a marathon, not a sprint, and even intense volatility is unlikely to alter a diversified approach set up to meet your long-term investment goals.We advise that you remain patient, and stick to the plan, as we’ve worked with you to establish a unique, personal allocation target based on your financial position, risk tolerance, and investment timeline.We remain focused on both opportunities and risks in the markets, and we thank you for your ongoing confidence and trust. Please rest assured that our entire team will remain dedicated to helping you successfully navigate this market environment.For more information about Janney, please see Janney's Relationship Summary (Form CRS) at www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.Please do not hesitate to contact us with any questions, comments, or to schedule a portfolio review.Sincerely,William A. Murdoch, Jr., CFP®, CRPC®, CLTC® Financial Advisor/Executive Vice President/Wealth ManagementJayne M. Scanlon, CFP®, CLTC®Financial Advisor/Wealth ManagementJanney Montgomery Scott LLC804 Main Street, Osterville, MA 02655(508) 420-1133www.janneyosterville.com  | wmurdoch@janney.com   | jscanlon@janney.comThis is being provided solely for informational and illustrative purposes, is not an offer to sell or a solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable but is not guaranteed as to accuracy or completeness. Opinions expressed are subject to change without notice and do not consider the particular investment objectives, financial situation or needs of individual investors. Past performance is not indicative of future results, and future returns are not guaranteed. There are risks associated with investing in stocks, such as a loss of original capital or a decrease in the value of your investment. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed here.

Markets staged an impressive rebound in the second quarter as a surge in tech-related corporate earnings growth combined with rising hopes for a U.S./Iran ceasefire to push stocks sharply higher, as the major U.S. averages hit new all-time highs. Markets received positive news almost immediately in the second quarter as, on April 7th, President Trump announced a two-week ceasefire with Iran, ending direct hostilities between the two countries. That news (and the subsequent move lower in oil prices) helped stocks recoup the geopolitically driven March declines, but it was really a stellar first-quarter earnings season that fueled the market rally in April. Annual earnings growth surged to approximately 15% for the S&P 500 following the Q1 results, a number nearly double the long-term average. While AI-linked tech companies posted some of the stronger earnings growth on booming data center demand, a broad swath of companies and sectors posted strong financial results as more than 80% of the companies reporting during the Q1 season beat Wall Street estimates. That AI-led earnings growth, along with the U.S./Iran ceasefire, helped fuel the strong rebound in stocks.Market gains accelerated in May and were driven by the same factors that drove the April rally: Strong earnings and expectations for a U.S./Iran ceasefire. Earnings in May, while not as plentiful as the April reporting season, were similarly strong with major tech companies such as Nvidia, Intel, Dell, Snowflake and others posting strong results that reinforced the simply massive demand for AI infrastructure. But while the tech sector again posted some of the strongest results, earnings on the whole in May were impressive with Walmart producing solid results and pushing back on fears that higher prices were hurting consumer spending. Meanwhile, surges in demand for data center components such as memory and semiconductors led to massive gains in certain tech stocks through the end of May, as the S&P 500 hit multiple new all-time highs during the month. Geopolitically, while there was no official U.S./Iran ceasefire, markets firmly believed there would be no material escalation either, so the lack of an official agreement didn’t weigh on stocks.The rally continued in early June thanks initially to reported progress on a U.S./Iran ceasefire agreement, which was signed by President Trump and Iranian leaders in mid-June. Anticipation for the SpaceX IPO (the largest IPO in history) also helped to further support the tech sector and AI-linked investments, as the S&P 500 hit another new all-time high mid-month. However, also in mid-June, investors received a surprise from new Federal Reserve Chairman Kevin Warsh. The Fed made no change to interest rates in June, as expected, but the meeting statement and Warsh press conference were viewed as “hawkish,” and the probabilities for a rate hike later this year rose sharply. That deviation from previous Fed policy expectations caused some market volatility. However, stocks generally proved resilient as falling oil prices (which dropped back to pre-war levels) led investors to believe the current inflation spike will be temporary.In sum, the stock market completed an impressive rebound from the steep declines of late March, as much-better-than-expected earnings growth (powered primarily by AI-linked tech stocks), continued solid economic activity, and the signing of a U.S./Iran ceasefire helped send the S&P 500 to new all-time highs. Second Quarter Performance ReviewThe gains in the S&P 500 in the second quarter were broad, but the impact of the AI boom was evident across and throughout markets. By market capitalization, small caps outperformed large caps thanks to a combination of strong economic growth (which can disproportionately benefit smaller company earnings), falling oil prices and the “trickle down” of AI optimism towards small-cap tech and AI infrastructure companies.  From an investment style standpoint, growth outperformed value but not as much as one would think given the strength in AI-linked tech stocks in the second quarter. Growth styles benefited from a surge in AI infrastructure stocks such as memory and semiconductor manufacturers while value strategies received a boost from industrials. On a sector level, 10 of the 11 S&P 500 sectors finished the second quarter with positive returns. The best performing sector in Q2 was, by a very wide margin, the technology sector as it benefited from huge rallies in memory stocks such as Micron and SanDisk as well as continued gains in the semiconductor stocks. Industrials also logged strong gains as companies in that sector were poised to benefit from increased AI data center construction as well as more defense spending. Finally, real estate also posted strong returns on anticipated data center demand, as several tech and AI-linked REITs posted very strong gains in the second quarter.Turning to the sector laggards, energy was the only sector to post a negative return for the quarter. The energy sector was pressured primarily by falling oil prices as they were sharply higher at the start of April before the U.S./Iran ceasefire process started. The communication services sector was the other clear laggard in the third second quarter (that sector saw only a small gain) as weakness in the legacy internet and mobile providers weighed on the sector (the IPO of SpaceX reminded investors Starlink and other satellite internet providers are legitimate threats to those legacy business models). International market performance was also influenced by tech/AI as emerging markets handily outperformed the S&P 500 in the second quarter thanks to an extreme rally in South Korean shares, as they benefited from the boom in memory companies. Foreign developed markets, however, lagged the S&P 500 as they received little AI performance-related boost compared to the S&P 500. Switching to fixed income markets, the leading benchmark for bonds (Bloomberg U.S. Aggregate Bond Index) realized a modest positive return for the second quarter as falling commodity prices reduced inflation concerns.  Looking deeper into the fixed income markets, shorter-duration bonds again outperformed longer-duration fixed income as some inflation statistics hit multi-year highs and ended Q2 far above the Fed’s 2.0% target. Turning to the corporate bond market, both investment grade and lower quality but higher-yielding bonds posted solidly positive quarterly returns. High-yield bonds outperformed investment grade debt, as generally resilient economic growth and falling geopolitical risks prompted investors to reach for higher yield despite greater credit risks. Third Quarter Market OutlookAs they did in 2025, stocks proved resilient in the first half of the year despite several macro-economic surprises, as strong corporate earnings and underlying economic growth overcame doubts about AI profitability, war and higher interest rates. To that point, investors had to confront numerous market surprises over the first six months of 2026, including a direct war between the U.S. and Iran, a spike in oil prices to multi-year highs, a rebound in inflation (which caused rate hike expectations to replace rate cut hopes) and some doubts about the broad profitability of AI. But while those surprises each caused temporary bouts of market volatility (with the worst coming in March after the U.S./Iran war began), they were largely offset by foundational bull market metrics: Strong earnings and solid economic growth. The Q1 earnings season was much stronger than expected, and while the earnings gains were led by AI-linked tech stocks such as Nvidia, Micron and others, the reality is the vast majority of companies reported better-than-expected revenue and earnings and that strong corporate performance helped to offset macroeconomic uncertainty.Economic growth, meanwhile, pushed back consistently on fears of stagflation following the war-driven spike in oil prices. Yes, inflation metrics and prices rose but economic growth never wavered, as virtually all economic indicators from the labor market, manufacturing and service sectors showed solid activity. Finally, AI enthusiasm remained a key driver of the stock rally, as numerous large tech companies reaffirmed their commitment to spend hundreds of billions of dollars on data center and AI infrastructure buildout, which gave investors continued confidence in the future of AI and provided a broad economic boost, as these massive tech companies spend across the economy to build out data centers and other AI infrastructure. However, while the market and economy were again impressively resilient in the first half of 2026, we must caution against allowing this resilient market to lull us into a false sense of security as we embark on the second half of the year, because risks to this bull market remain. First, expectations for Fed rate hikes are rising. At the start of 2026, investors widely expected one or two rate cuts in 2026. Now, because of high inflation, the market is expecting, perhaps, one or two rate hikes. And while that is not automatically negative for markets, the reality is that the last time the Fed embarked on a rate hike campaign (2022) stocks dropped sharply. Second, the exposure of the entire economy and market to continued AI investment remains a source of concern. Massive AI infrastructure investment is helping to power the economy, but if the companies spending that money begin to doubt the ROI of AI infrastructure investment, they could reduce spending and that would be an economic negative that impacts markets. Finally, the U.S. economy has proved historically resilient over the past several years, but it is not infallible. The rebound in inflation, if it continues, threatens consumer spending and the housing market and we will be watching the economy closely, because at elevated valuations, the stock market is not at all pricing in a loss of economic momentum.In sum, we start the second half of 2026 with a strong market: Earnings growth is above historical averages, economic growth is solid and AI enthusiasm remains as boisterous as ever. However, risks remain in the form of high inflation (which could hurt economic growth), potential rate hikes and vulnerability to AI infrastructure spending, and we will monitor these risks closely as we continue to balance risk and reward.    To that point, at Janney Montgomery Scott, we are committed to helping you effectively navigate this unique investment environment. Successful investing is a marathon, not a sprint, and even intense volatility is unlikely to alter a diversified approach set up to meet your long-term investment goals.We advise that you remain patient, and stick to the plan, as we’ve worked with you to establish a unique, personal allocation target based on your financial position, risk tolerance, and investment timeline.We remain focused on both opportunities and risks in the markets, and we thank you for your ongoing confidence and trust. Please rest assured that our entire team will remain dedicated to helping you successfully navigate this market environment.For more information about Janney, please see Janney's Relationship Summary (Form CRS) at www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.Please do not hesitate to contact us with any questions, comments, or to schedule a portfolio review.Sincerely,William A. Murdoch, Jr., CFP®, CRPC®, CLTC®Financial Advisor/Executive Vice President/Wealth ManagementJayne M. Scanlon, CFP®, CLTC®Financial Advisor/Wealth ManagementThis is being provided solely for informational and illustrative purposes, is not an offer to sell or a solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable but is not guaranteed as to accuracy or completeness. Opinions expressed are subject to change without notice and do not consider the particular investment objectives, financial situation or needs of individual investors. Past performance is not indicative of future results, and future returns are not guaranteed. There are risks associated with investing in stocks, such as a loss of original capital or a decrease in the value of your investment. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed here.

WAR, CREDIT WORRIES AND AI ANXIETY WEIGH ON STOCKS