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A large rise in bond yields defined the quarter
Equity and fixed-income returns
Third-quarter and year-to-date
Source: S&P 500, Russell 2000, Bloomberg Aggregate Bond, Bloomberg Intermediate Municipal; as of September 30, 2026.
Inflation and deficit concerns pushed bond yields higher in the third quarter. The 10-year Treasury yield rose by about 0.75%, reaching levels not seen in nearly 20 years.
The chart on the left shows stock and bond returns for the quarter. Returns were negative across the fixed-income categories, as higher yields drove prices lower. On the equity side, large-cap stocks managed gains, supported by AI-related companies and generally strong corporate earnings. Small-cap stocks, which are more sensitive to interest rates, pulled back after a strong first half of the year.
The chart on the right reviews results for the first three quarters of the year. Both US large-cap and small-cap stocks posted double-digit returns. So far, higher bond yields have not derailed the bull market in stocks that began in late 2022. Looking ahead, however, a continued rise in yields remains high on the list of risks that could trigger a stock market correction.
What we’re watching this week
Wednesday: The Fed will release the minutes from its mid-September FOMC monetary policy meeting. Investors will look for clues about the likelihood and timing of any further rate hikes.
Friday: The University of Michigan’s Consumer Sentiment survey for early October will be released. The gap between low consumer confidence and strong consumer spending remains a source of concern.
