As we begin the fourth quarter of 2026, we wanted to share a few observations on the investment landscape and the themes shaping markets today. The third quarter was marked by two significant forces pulling in opposite directions. Interest rates moved higher, with the 10-year Treasury yield reaching levels not seen in more than two decades. At the same time, corporate earnings remained resilient, providing support for equity markets and helping major indices reach new highs. Despite heightened discussion around interest rates and inflation, markets continued to advance, with the S&P 500 returning 2.3% during the quarter and 12.7% year-to-date, while the Nasdaq gained 16.1% over the same period.

While rising rates have created headwinds for bonds, they have also restored an attractive source of income for investors. Today, fixed income offers yield opportunities that have been largely absent for much of the past decade. Beyond stocks and bonds, returns have been supported by a wide range of asset classes. Commodities moved higher, driven in part by oil prices approaching $100 per barrel amid ongoing geopolitical tensions, while international markets remained near their recent highs.

Through changing market environments, our philosophy remains unchanged: successful investing is built on discipline, diversification, and a long-term perspective.

Understanding the Impact of Higher Interest Rates

One of the most important developments in today's market is the sustained rise in interest rates. For many years following the 2008 financial crisis, historically low rates shaped both the economy and investment markets. That environment has shifted meaningfully. By the end of the third quarter, the 10-year Treasury yield approached 5.3%, a level not experienced in approximately twenty years.

Higher rates can create short-term pressure on bond prices, as reflected by the Bloomberg U.S. Aggregate Bond Index, which declined 3.5% during the quarter. However, it is important to recognize the other side of that equation. Bonds today generate significantly more income than they have in many years, improving their role as both an income-producing and diversification asset within balanced portfolios.

For long-term investors, the current yield environment presents opportunities that have been largely unavailable throughout much of the last decade. Higher rates also influence broader economic activity. Mortgage rates, for example, have risen above 7%, creating challenges for both buyers and sellers in the housing market. Homeowners who secured significantly lower rates in prior years have less incentive to move, contributing to slower housing activity. These are examples of how monetary policy works its way through the economy over time.

The Federal Reserve's Return to Rate Increases

At its September meeting, the Federal Reserve increased its benchmark policy rate by 0.25%, bringing the target range to 3.75% to 4.00%. This marked the first rate increase in three years and followed a period of easing that began in late 2024. The primary catalyst for the move has been renewed inflationary pressure stemming largely from higher energy prices. While core inflation has remained relatively contained, elevated oil prices have pushed headline inflation above the Federal Reserve's long-term target. Although monetary policy cannot directly address geopolitical conflicts or energy supply disruptions, policymakers aim to prevent temporary inflationary pressures from becoming more broadly embedded in the economy.

Current expectations suggest the Federal Reserve may implement one additional increase before year-end and then maintain rates at elevated levels for much of 2027. As always, economic conditions will ultimately determine the path forward. Importantly, history reminds us that higher interest rates do not necessarily prevent positive market returns. Periods of rising rates and rising stock prices often occur simultaneously when economic growth remains healthy and companies continue to deliver strong earnings. The third quarter provided a recent example of this dynamic.

The Midterm Election: Staying Focused on What Matters

As the November midterm election approaches, political headlines will inevitably become more frequent and more emotional. While elections are important from a policy perspective, history suggests they are generally less important to long-term investment outcomes than many believe. Markets have navigated a broad range of political environments over time, including periods of divided government, changing administrations, and shifting legislative priorities.

What tends to drive long-term market performance is not political party affiliation, but rather factors such as corporate profitability, economic growth, innovation, productivity, and the business cycle.

That does not mean political developments cannot create short-term volatility. Issues such as tariffs, tax policy, government spending, and the national debt have all contributed to market uncertainty at various points. Yet markets have historically demonstrated a remarkable ability to adapt and move forward.

For this reason, we believe it is important to avoid making significant portfolio decisions based on political forecasts or election outcomes. Your financial plan is designed to endure through changing political climates, economic cycles, and market conditions.

Looking Ahead

As we move into the final months of the year, many of the themes that shaped the third quarter are likely to remain at the forefront of investor attention. Interest rates, energy prices, artificial intelligence investment, and the upcoming midterm election will continue to influence headlines and market sentiment.

At the same time, it is important to keep sight of the broader picture. Corporate earnings remain solid, economic growth continues, and a diverse set of asset classes has contributed to portfolio returns this year.

While markets will undoubtedly encounter periods of uncertainty, our approach remains rooted in the principles that have consistently guided successful investors: thoughtful planning, disciplined execution, broad diversification, and patience.

As always, if you have questions about the markets or would like to discuss how these developments may impact your personal financial plan, we welcome the conversation. Helping you navigate complexity with clarity and confidence remains our highest priority.