What happened in the markets during the third quarter of 2026, and what should investors be watching as we head toward the end of the year and into 2027? In this Q3 2026 Market Commentary, Cassie Laymon and Hillary Sunderland discuss the latest market and economic developments, including:

• How stocks and bond performed during the third quarter
• Why bonds struggled
• The return of inflation concerns and rising energy prices
• The Federal Reserve’s interest-rate decision
• Why higher bond yields could create better opportunities for future returns
• What history tells us about investing during midterm election years
• Why corporate earnings matter more to long-term stock returns than political headlines
• Beacon’s outlook for the remainder of 2026 and into 2027
• Why staying diversified and focused on long-term goals remains important during periods of volatility

Watch the video or read the full transcript below.

Transcript

Cassie Laymon

Well, Hillary, can you even believe it’s the fall? We’re headed into our last market commentary of the year already.

Hillary Sunderland

Yeah, it’s hard to believe, Cassie. Time’s going by quickly.

Cassie

It really is. So I’m happy to be with you here today for our market commentary. And I thought I would just kick off and ask you, you know, when investors are looking at their statements, it’s fair to say that the 3rd quarter of the year looks very different from the first half of the year. So tell us a little bit about that.

Hillary

Yeah, Cassie. Well, you know, we came into the 3rd quarter following a very strong start to 2026. As this chart shows, the year-to-date returns shown in yellow here remain strong, but the 3rd quarter returns shown in blue were much more modest.

Much of this year’s gains were really earned in that first half of the year, driven by a lot of geopolitical developments and exceptionally strong AI and technology-related earnings growth, the 3rd quarter represented more of a pause than a continuation of that momentum. Specifically in the 3rd quarter, despite a steady stream of challenging headlines, the S&P 500 still delivered a modest gain of 2.3%. But beneath the surface, it was a much bumpier ride. Small-cap stocks declined about 7%. International and emerging market stocks were largely flat. And then bonds experienced one of their weakest quarters in a few years as interest rates moved sharply higher. The other thing we saw during the quarter was that market participation also narrowed. More than half of large-cap companies ended the quarter below their longer-term trend levels, meaning that there’s a growing number of individual stocks that were struggling to keep momentum. And this really suggests that investors are becoming more selective and cautious as the quarter progressed, which is not uncommon at all heading into a midterm election.

Overall, I’d say returns were fairly muted across most asset classes during the quarter. And that made it a particularly challenging environment for more conservative investors, which have typically larger allocations to fixed income.

Cassie

Well, Hillary, I think one of the biggest stories that happened this quarter has to do with the bond market. So tell us about what has been happening in the bond markets.

Hillary

Yeah, well, during the quarter, inflation reemerged as the primary concern for investors. This chart shows the different components of inflation.

And what you can see there is energy-related inflation as shown in green. And a lot of the inflationary pressures we’ve seen this year has really come from higher energy prices. During the quarter, oil prices moved sharply higher. Crude oil is up about 30% as tensions in the Middle East continued and hopes for a resolution in the Strait of Hormuz faded. And that inflationary pressure prompted the Federal Reserve to raise interest rates by 0.25% in September. And that was its first rate increase since 2023. The Fed continues to emphasize its commitment to bring inflation back to that 2% target. But the challenge is that inflation remains stubbornly above its target at approximately 3.4% year over year.

Cassie

So what impact did inflation have on the bond market?

Hillary

Well, as inflation pressures persisted, investors started to embrace this higher-for-longer interest rate outlook, which led to a sharp increase in bond yields. This chart shows how much Treasury yields had moved over the last couple of quarters.

The light blue line shows Treasury yields at the end of 2025, and the dark blue shows where yields stood at the end of the third quarter. And what I really wanted to show here, right, is that the move higher in yields was significant across every maturity. The 10-year Treasury ended the quarter with its highest yield in more than 2 decades. And so several factors beyond inflation contribute to this increase. including concerns about federal debt levels and elevated corporate borrowing. But when yields move higher, bond prices move lower, which resulted in a difficult quarter for fixed income investors.

Cassie

Well, so what does this all mean for bond investors as we look to the years ahead?

Hillary

Well, the good news is that while higher interest rates were a headwind for bonds this quarter, the move higher in yields improved the outlook going forward. So historically, the yield investors receive when they buy bonds has been one of the best indicators of future returns, and today’s yields are much more attractive than they’ve been in quite some time. So as a quarter end, what you can see on this chart is that the yield on the bond index implies a forward 5-year return of just over 5.7%.

So while investors did not enjoy the ride this quarter, they’re now being compensated with higher income and better long-term return potential looking ahead. Additionally, you know, we use the bond market sell-off as an opportunity to harvest tax losses in many client accounts. So, although the decline in the prices of bonds was frustrating, those losses can be valuable from a tax perspective because it helps offset gains elsewhere in the portfolio. And so, it’s really a good example of how periods of market weakness can create opportunities to add value beyond investment returns alone. And so, we are trying to capture you know, different ways we can add value to clients along the way, even when it has been a frustrating few weeks.

Cassie

Oh, thanks for that explanation. That’s helpful. Well, you know, we’re going into the 4th quarter. All eyes seem to be on the midterm elections. So what should investors keep in mind as we are heading into this sometimes turbulent time?

Hillary

Yeah, well, you know, midterm election years have historically been accompanied by greater volatility, And more modest market returns leading up to Election Day. But investors really need to remember something very important, that while politics captures your attention, earnings is what ultimately drives stock prices. So when you look back at different midterm election years and even presidential election years throughout history since the 1950s, stock market performance has tracked corporate earnings much more closely than it has tracked which party controls Washington.

And that’s because in the simplest terms, the value of a business is determined by its ability to generate earnings over time. And by that measure, the outlook remains encouraging. Corporate profits continue to be a bright spot. We remain on track for the 4th consecutive year of double-digit earnings growth. And that’s why, despite the inevitable election-related noise we’re going to receive over the next few weeks, we do continue to view the underlying backdrop for investors as constructive. Additionally, you know, history suggests that markets have done well under virtually every political configuration, whether one party controls Washington or whether power is divided. In fact, investors have often preferred a split Congress because it can reduce policy uncertainty and it makes major legislative changes less likely as the different political parties keep one another in check.

And so while I do think that election-related headlines are likely to drive market sentiment in the weeks ahead, History shows that markets tend to stabilize once the election passes, and over the long run, investment returns are driven much more by fundamentals than which party controls Congress.

Cassie

Okay, we might need you to keep reminding us of all of that. Yes, it’s hard to keep in mind when there’s so much noise, you know, happening in the news. Absolutely. Okay, with all of that in mind, Tell us about your outlook for the rest of 2026 and as we are headed into the beginning of 2027.

Hillary

You know, overall, we remain cautiously optimistic. So the next couple weeks, as I said, might be a little volatile heading into the election, but the economic backdrop remains very healthy. The labor market is healthy. Technology investment continues at a strong pace. Corporate earnings, as I said earlier, remain exceptionally strong. And global economic growth is remarkably resilient. Now, that being said, there are some headwinds. We have higher energy prices we’re working through. That probably won’t be resolved until after the election. Iran is probably going to hold the Strait of Hormuz resolution hostage until after the midterms to frustrate President Trump’s base. But we also have higher borrowing costs, gradual reduction in fiscal stimulus. Those pressures are likely to slow economic growth in the coming quarters. But we don’t expect a recession. So our expectation really is for slower but still positive economic growth through the remainder of this year and into 2027. We do think that energy inflation should cool over time. The Federal Reserve is likely to raise rates once more this year, likely not until December. They probably won’t do it right before the midterm elections. And for investors, you know, the message really remains unchanged.

Stay diversified. Disciplined, stay focused on the long term. And really, if I could leave clients with one takeaway, it’s really this chart.

So just remember that markets rarely move in a straight line up and to the right. The 3rd quarter was, you know, that pause we saw in the 3rd quarter was really a normal part of the investing journey. And while volatility and feeling like you’re, you’re not really making much in returns for a few months can feel uncomfortable, It’s often the price of achieving long-term total returns. Successful investing really isn’t about avoiding market swings. It’s about staying focused on your long-term goals through them.

Cassie

Thank you. That is a good reminder, and we’ll, we’ll keep that in mind. Is there anything else you want to share with us today?

Hillary

Well, before we wrap up, Cassie, I’d love to shift gears for a moment. Would you be able to share a few thoughts about our ministry project with the Omnah Foundation? And how our clients can get involved if they’d like to.

Cassie

Sure. Thank you for asking about that. Our ministry project this year, it’s called the Omnah Foundation. It’s based in Roanoke, Virginia. And this is an organization that helps to support adoptive parents and their journey. And so we find that and I was really surprised by the statistic. Adoptions can cost upwards of thirty to seventy thousand dollars. And of course, that is a really difficult thing for most families. And specifically, the Omnah Foundation helps Christian families to adopt.

And so they create homes for children in need and provide families who are going to bring these children up in the faith. And we just really feel like that is in alignment with all the values and the things that we hold dear at Beacon Wealth and also many of our clients. And so we’re just inviting them to all of our clients or any friends to partner with us.

And through the end of October, dollar for dollar, we will match any donations made to the Omnah Foundation. There’s a specific link that you can use to make your donation.

GIVE HERE!

And then at the end of October, we’re going to match that and make a nice big donation to the Omnah Foundation to achieve that goal. So I just want to say in advance, thanks to everyone who’s participated in that and are getting ready to participate in that. So hopefully you’ll get a chance to take a look at that link. And I just want to wrap up by saying thank you so much for your partnership with Beacon Wealth. We love helping you on your financial journey. If you have any questions about what we talked about today, please don’t hesitate to reach out directly to your financial advisor.

Hillary

Thanks, Cassie.

Have a great day.