By: Darren W. King | Wealth Management
Source: Bloomberg, Inc.
Key Takeaways:
Equity Strategy
As inflation and interest rates moved higher in the third quarter; equity investors have stuck with a narrow set of AI CAPEX trades that continue to work for now. International, value, interest rate sensitive, and small cap shares have underperformed as rates have risen over the past quarter. We see the risk reward for equities outside the AI trade improving through year-end. This is especially true as market valuations have re-rated to more attractive levels over the course of 2026. With earnings growth rates in 2026 somewhere in the 35% range; we do not see a bear market in stocks in the near-term, despite higher interest rates.
Fixed Income Strategy
Within fixed income markets, a bond selloff started in February when 10-year treasuries rose from 3.94% to the current 5.24% yield, a 24-year high. In short, term premiums, or extra payout investors demand in yield to hold long-dated assets commenced. A sustained term-premium increase would add to the pressure on the market from elevated inflation and geopolitical shocks, robust economic growth, plus a flood of borrowing both from deficit-running governments and companies investing in artificial intelligence. Our outlook is for interest rates to move lower following the Iran energy inflationary scare, whenever it happens, and to take advantage of historically high interest rate levels now.
Click here to read the entire Q3 2026 Market Review.
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