If the second quarter rewarded investors' patience, the third quarter asked for a little more of it. On the surface, the results were respectable: the S&P 500 added to its gains and set new all-time highs in August. Beneath the surface, it was a more demanding quarter. Hopes for a lasting peace with Iran faded, oil prices climbed back toward $90, inflation proved stubborn, and the Federal Reserve raised interest rates for the first time in three years. Bond yields rose to levels not seen in more than two decades, and most stocks, outside a small group of technology leaders, finished the quarter lower.
The quarter at a glance
| Index or asset | Q3 2026 | Year to date |
|---|---|---|
| S&P 500 (price return) | +2.0% | +11.8% |
| Nasdaq Composite | +2.5% | +15.6% |
| Dow Jones Industrial Average | -2.7% | +5.9% |
| Russell 2000 (small companies) | -7.5% | +12.7% |
| WTI crude oil | +29% (to about $91) | +58% |
| 10-year Treasury yield | Sharply higher | 5.29% at quarter-end |
Indexes are unmanaged, don't reflect fees or expenses, and can't be invested in directly. They don't represent the performance of any C&D client account.
The broadening we saw last quarter reversed. Small-company stocks dropped 7.5%, the equal-weighted S&P 500 declined about 1.5%, and seven of the eleven S&P 500 sectors finished lower. Energy rose about 17% as oil rebounded, and technology rose about 7%. The most interest-rate-sensitive areas, such as utilities and real estate, struggled.
Higher oil, again
The ceasefire we noted last quarter didn't hold. Hostilities with Iran resumed in July, shipping through the Strait of Hormuz stayed largely blocked, and oil rose about 29%. At the pump, regular gasoline averaged about $4.47 a gallon in late September, roughly $1.35 more than a year earlier.
The Fed changes direction
The most important development came from the Federal Reserve. With inflation above its 2% target for 65 months, the Fed raised its target range by a quarter point on September 16, its first increase since 2023. Bond markets moved even faster: the 10-year Treasury yield ended the quarter at 5.29%, its highest since 2002, and 30-year mortgage rates climbed back above 7%. That's been painful for existing bond holders. For savers and anyone putting new money to work, though, yields are higher than they've been in more than two decades.
Earnings are still the engine
Corporate profits have been the steady part of this year. In the second quarter, 86% of S&P 500 companies beat analysts' earnings estimates, well above the five-year average of 78%. Because earnings have grown faster than prices, the market's valuation is actually lower than it was at the start of the year.
The economy: solid growth, sticky inflation
The economy grew at a 2.2% annual rate in the second quarter, and unemployment has stayed between 4.1% and 4.3% since March. Hiring has slowed, though, and inflation remains the central challenge at 3.4%. Core inflation, which leaves out food and energy, is a calmer 2.4%, which supports our view that this is still mostly an energy story.
How we're thinking about it
We enter the last quarter of the year with solid fundamentals and a more complicated backdrop. Interest rates are now the biggest single variable for markets. A lasting agreement with Iran could bring oil and inflation down; a continued standoff keeps both elevated. Market leadership has narrowed again, and the November midterm elections may add some noise.
For clients, that means staying invested according to each person's plan, staying diversified across sectors, company sizes, and regions, and rebalancing where strong gains have pushed an allocation past its target. In bonds, we're being disciplined about how long we lock in rates.
A closing thought
Nine months into 2026, investors have been through a war, an oil shock, a new Fed chair, a sharp rebound, and the first rate increase in three years. Years like this are why we build plans meant to hold up when the headlines argue otherwise. If you'd like to talk through what this means for your own situation, I'd be glad to sit down with you.
This commentary is for information only and is not investment, legal, or tax advice, or an offer to buy or sell any security. Data comes from sources believed reliable as of October 2026 but isn't guaranteed. Opinions are as of the date written and may change. Past performance is not indicative of future results.