Q3 2026 Investment Commentary
The Quarter In Review
Taking a look at the third quarter of 2026, large-cap stocks outpaced small and mid-cap stocks, a shift from earlier this year. By sector, technology, healthcare, and energy were the best performers. The S&P 500 is up 2.5% on the quarter and up 13% on the year, and earnings growth continues to drive those returns rather than simply expanding multiples.
Outside the US, developed international stocks posted positive returns while emerging markets were flat. We saw gains in Europe and emerging markets, with Brazil, Taiwan, and Japan among the standouts. On the year, developed international markets are up 11%, and emerging markets are up double digits. Small-cap value stocks are up 17% in 2026, while real estate had a less spectacular quarter, down 7%, but remains up 8% on the year.
For commodities, oil price gains pushed them into the top-performing asset class category again.
| Asset Class | Q3 Returns | YTD Return |
|---|---|---|
| Commodities | 18.5% | 32.9% |
| Emerging Markets | -0.3% | 23.7% |
| Small Cap Value Stocks | -6.0% | 17.0% |
| Large US Stocks (S&P 500) | 2.5% | 12.7% |
| International Developed Stocks | 1.0% | 10.8% |
| Diversified Portfolio | -0.5% | 8.8% |
| REITs | -7.0% | 7.9% |
| Cash | 1.0% | 2.8% |
| International Bonds | -1.7% | -2.4% |
| Corporate Bonds | -3.5% | -2.9% |
| Municipal Bonds | -6.5% | -4.2% |
Fixed Income
Bonds had a rough quarter as interest rates rose. The Bloomberg U.S. Aggregate Bond Index dropped 3.5%, corporate bonds dropped almost 4%, and municipal bonds dropped over 6%. Munis were hit harder because of their longer maturities and higher duration, and stand to benefit most significantly if we see rates move the other direction. Global bonds were not spared either, down about 2% on the quarter and down a few percent on the year.
Quarterly Overview
We continue to be very happy with the performance we are seeing out of the equity side of the portfolio, and bond yields on the fixed income side have more potential to contribute to returns now than they did earlier in the year. With bonds now providing real yield above inflation, if there is an economic pullback, a cut in rates should boost bond returns. As long-term investors, it’s important not to get too caught up in the near-term fluctuations of any particular market; it just happens to be that the one getting all the attention today is bonds.
Valuations and Earnings
Despite the S&P 500 being near an all-time high, it is trading at about 19x forward earnings. That is lower than it was before the sell-off in 2022, and about 6x lower than before the sell-off in 2000. The valuation of the top 10 companies in the S&P is closer to 20 times earnings now, which is more reasonable than it has been. Micron has bumped Berkshire Hathaway out of the top 10 by market cap and is the newest addition.
Top 10 S&P Companies By Market Capitalization
Source: Bloomberg, FactSet, Standard & Poor’s, J.P. Morgan Asset Management. Guide to the Markets – U.S. Data are as of September 28, 2026.
In other pockets of the portfolio, global equity valuations also look better than they did at the start of the year, in part because of improved earnings across the board. Small value remains the most fairly valued asset class, trading at 93% of its historical valuation levels.
The Fed, Oil, and the Consumer
We continue to keep an eye on the Federal Reserve, which raised rates by 25 basis points and may continue to raise them if inflation does not come down. Fundamentally, the price of oil is a big driver of the inflation we see today, and of inflation assumptions going forward as we head toward the winter months. Consumer confidence also remains at historic lows, highlighting the K-shaped economy that rewards investors, but has seen rising costs strap consumers’ pocketbooks.
Source: Renaissance Capital. Data includes IPOs and direct listings with a market cap of at least $50mm. Excludes closed-end funds, unit offerings, and SPACs. Includes IPOs scheduled to price on or before 9/30/26.
IPO Monitor
The second quarter was a bit hotter for IPOs with the SpaceX IPO, but the third quarter still saw $35 billion raised across 31 different IPOs. We continue to keep an eye on the IPO market, where several AI companies, including Anthropic and OpenAI, have filed S-1s and are awaiting a potential announcement.
Notable Private Companies Expected to Seek IPOs
| Company | Business Description | Est. Sales ($mm) | Est. Valuation ($mm) † |
|---|---|---|---|
| Anthropic* | Developer of a foundational LLM known for its AI assistant Claude. | $65,000 | $965,000 |
| OpenAI* | Developer of AI models and applications, including ChatGPT. | $40,000 | $852,000 |
| Roze* | SoftBank carve-out developing robotics and AI infrastructure. | - | $100,000 |
| Switch* | Provides colocation services through data center campuses. | - | $70,000 |
| Westinghouse Electric* | Provides reactors, reactor components, and outage services. | $5,040 | $50,000 |
| HUB International* | A leading North American insurance brokerage. | $5,280 | $29,000 |
| DayOne Data Centers* | Global data center developer and operator spun out of GDS Holding. | - | $20,000 |
| Inspire Brands* | Franchises Arby’s, Buffalo Wild Wings, and other restaurants. | $32,600 | $20,000 |
| Discord* | Provides a gaming-focused voice chat service and social network. | $550 | $15,000 |
| Tenneco* | Makes vehicle emission systems, powertrains, and other auto parts. | $18,000 | $14,000 |
| Axyv (Missile Solutions)* | Missile systems carve-out of defense company L3Harris Technologies. | $3,700 | $11,000 |
| Mavis Tire* | Leading automotive services company with more than 3,600 locations. | $4,600 | $10,000 |
| Kakao Mobility* | Ride-hailing app operator spun out of South Korea’s Kakao. | - | $10,000 |
| Altera* | Provider of FPGAs and other chip products. | $1,632 | $8,750 |
| General Atlantic* | Global growth equity firm. | - | $8,500 |
| FalconX* | Provides cryptocurrency-focused digital brokerage services. | - | $8,000 |
| Plaid | Provides a platform for sharing encrypted consumer financial data. | $500 | $8,000 |
| AlphaSense | Provides an AI-powered market data and research platform. | $700 | $7,500 |
| Brooks Automation* | Semiconductor automation equipment maker. | $850 | $5,000 |
| Strava* | Provides a subscription-based fitness tracking app. | $500 | $2,200 |
Source: Renaissance Capital
Where We Are Focused
Overall, we want to keep our focus on long-term planning, building globally diversified portfolios, and optimizing for after-tax returns. That typically means systematic rebalancing, routine tax-loss harvesting when volatility strikes, embracing asset location across the portfolio, and keeping your portfolio and tax situation in tune. As always, please reach out to your advisor with any questions about how these market moves relate to your own plan.
About the Author
This document contains forward-looking statements, predictions and forecasts (“forward-looking statements”) concerning our beliefs and opinions in respect of the future. Forward-looking statements necessarily involve risks and uncertainties, and undue reliance should not be placed on them. There can be no assurance that forward-looking statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements. Past performance is not indicative of future results. All investments involve risk, including the loss of principal.