NWP Quarterly Insights | Q3 2026
Strong Earnings and Economic Growth Push the S&P 500 Higher Despite Higher Oil Prices and Rates
The skinny
The S&P 500 rose 2.30% and set a new all-time high in August. But the gain was narrow. The Dow, mid caps and small caps all fell.
Oil was the story. The crude index jumped 30.16% after the U.S./Iran ceasefire collapsed, and Brent traded back above $100.
Bonds had a rough quarter. The Fed raised rates in September, the 10-year Treasury yield hit a 19-year high, and the Bloomberg Aggregate lost 3.51%.
A strong economy and strong earnings did the heavy lifting. They still are.
What happened
July opened with second-guessing on AI. Spending plans looked very aggressive, investors wondered whether demand could keep up, and names like Nvidia and Micron sold off. Then on July 13 the U.S. re-imposed its blockade on the Strait of Hormuz, the ceasefire with Iran fell apart, and oil jumped. What saved the month was earnings. Microsoft and Amazon both reported strong results and upbeat comments on AI revenue, and the S&P 500 clawed back to roughly flat.
August was the good month. The attacks stopped, AI stocks rallied, and the S&P 500 hit a record on August 12 on its way to a 2.7% gain. It wasn't all clean, though. At Jackson Hole, Fed Chair Warsh made it plain that stubborn inflation likely meant rate hikes. And the Houthis reached the Yemeni coast, threatening ships leaving the Bab el-Mandeb Strait.
September was harder. The Houthis kept advancing. Iranian-aligned groups sabotaged Saudi Arabia's East-West pipeline. The Fed hiked 25 basis points and signaled more to come. Yields surged, and the S&P 500 gave back a little to end the month slightly down.
US stocks
| US Equity Indexes | Q3 Return | YTD |
|---|---|---|
| S&P 500 | 2.30% | 12.75% |
| DJ Industrial Average | -2.34% | 7.19% |
| NASDAQ 100 | 0.58% | 21.01% |
| S&P MidCap 400 | -6.36% | 9.88% |
| Russell 2000 | -7.23% | 13.71% |
Source: YCharts
Large caps carried the quarter. Only four of the 11 S&P 500 sectors finished positive, with energy far out in front and tech and healthcare also up. Utilities were the worst performer, since higher bond yields make their dividends less appealing. Industrials struggled too, squeezed by rate worries and record diesel costs. Small and mid caps fell 6% to 7%.
International stocks
| International Equity Indexes | Q3 Return | YTD |
|---|---|---|
| MSCI EAFE TR USD (Foreign Developed) | 0.88% | 10.81% |
| MSCI EM TR USD (Emerging Markets) | -0.24% | 23.73% |
| MSCI ACWI Ex USA TR USD (Foreign Dev & EM) | 0.57% | 14.66% |
Source: YCharts
Foreign developed markets managed a small gain. Emerging markets slipped slightly as the dollar strengthened. Both trailed the S&P 500, partly because foreign indexes hold less AI-related tech.
Commodities
| Commodity Indexes | Q3 Return | YTD |
|---|---|---|
| S&P GSCI (Broad-Based Commodities) | 25.10% | 55.24% |
| S&P GSCI Crude Oil | 30.16% | 57.49% |
| GLD Gold Price | 3.70% | -3.79% |
Source: YCharts/Koyfin.com
Oil, oil, and more oil. Three things disrupted supply at once: the Iran conflict, the Houthi advance, and Ukrainian strikes on Russian energy infrastructure. Diesel hit record highs. Gold posted a modest gain but is still down for the year.
Bonds
| US Bond Indexes | Q3 Return | YTD |
|---|---|---|
| Bloomberg US Aggregate Bond Index | -3.51% | -2.91% |
| Bloomberg 1-3 Month U.S. Treasury Bill Index | 0.93% | 2.75% |
| ICE US Treasury 7-10 Year Index | -4.54% | -4.51% |
| Bloomberg US Mortgage Backed Securities Index | -4.25% | -3.31% |
| Bloomberg Municipal Index | -6.35% | -4.18% |
| Bloomberg US Corporate Index | -3.94% | -3.11% |
| Bloomberg US Corporate High Yield Index | -1.82% | 0.10% |
Source: YCharts
Not many places to hide here. Treasury bills earned 0.93%. Everything longer lost money as inflation worries and Fed hikes pushed yields up. Municipal bonds took the hardest hit at -6.35%. High yield held up best among the longer-dated categories, down 1.82%.
Looking ahead to Q4
Start with what's working. The labor market is healthy, consumers kept spending despite higher prices, and both manufacturing and services picked up. The Atlanta Fed's GDPNow estimate stood at 5.0% in late September. Earnings estimates for 2027 were revised higher again. And because profits have grown along with prices, the S&P 500 traded below its five-year average valuation through the quarter.
Now the things we're watching:
Oil and geopolitics. The longer the Iran and Ukraine stalemates run, the greater the headwind on economic growth. Real diplomatic progress in either one will bring energy prices down, and that should be a significant positive for markets.
Treasury yields. Much of the rise in the 10-year looks tied to oil. If oil declines, yields will likely follow, and that eases the pressure on the economy.
The Fed. Markets have priced in more hikes for 2026 and 2027. Limited hikes that contain inflation will be a longer-term positive. And if inflation eases this quarter, rate hike expectations will come down and pull Treasury yields with them.
AI spending. The boom-then-bust worry is a fair one, especially for anyone who lived through the dot-com era. But Q3 brought signs that the investment is already turning into revenue. More evidence of that in Q4 will ease those concerns, and tech will likely lead markets higher again.
What this means for you
Probably less than the headlines suggest. Your allocation was built around your goals, your timeline, and your comfort with risk, and it was built knowing quarters like this would come along.
That said, it would be naive to wave off what's happening. Oil above $100, a Fed that's raising rates, and a market leaning hard on a handful of AI names are real risks. We're watching each of them. Same goes for the opportunities they create.
So here's where we stand. Right now we're positioned defensively relative to each client's investment objectives. That means two things.
First, a little less in stocks. We hold slightly less in equities and slightly more in high-quality bonds than a traditional mix like 60/40 or 80/20 would. The goal is a portfolio that moves a little less than the market does, in both directions. Those bonds had a tough quarter as rates rose. No sugarcoating that. But higher yields also mean more income going forward, and quality is what tends to hold up if growth slows.
Second, less riding on the biggest names. The U.S. market leans heavily on a small group of companies, most of them tied to AI. We'd rather spread the bets:
International stocks, roughly 30% of equities. Owning the rest of the world means your results don't hinge on one country or one theme.
Emerging markets. A different set of growth drivers. And so far this year, the strongest equity index in the tables above, up 23.73%.
Smaller companies. Q3 was rough for them. But small caps are still ahead of the S&P 500 year to date, and they give you reach well beyond the mega caps.
A slight tilt away from AI and the most concentrated names. We still own them. We just don't want your plan riding on them.
Some of these choices trailed in Q3. We’re comfortable with that trade. We’ll keep adjusting as conditions change, and we’re always glad to walk you through what we’re doing and why.
Questions? Call or email us anytime. And thank you, as always, for your trust.
Index returns are shown for illustration only. Indexes are unmanaged and cannot be invested in directly. Past performance does not guarantee future results.
