--- title: Q3 2026 Market Review description: "Equities held up in Q3 even as bond yields surged and the Fed hiked rates for the first time since 2023. What were the main drivers, and what key developments should investors be watching in Q4? \n\n#Q3Review #Inflation #Fed #InvestmentStrategy" image: https://info.glenmede.com/hubfs/GLM%20Assets/IS%20Brief%20Bull%20Bear.jpg --- [![GLENMEDE](https://info.glenmede.com/hubfs/raw_assets/public/Glenmede_September2023/images/dark-logo.svg "GLENMEDE")](https://www.glenmede.com/) - [About Us](https://www.glenmede.com/about-us/) - [Who We Are](https://www.glenmede.com/about-us/#who-we-are) - [Our History](https://www.glenmede.com/about-us/#our-history) - [The Board](https://www.glenmede.com/about-us/#the-board) - [Our People](https://www.glenmede.com/about-us/#our-leadership) - [Careers](https://www.glenmede.com/careers/) - A True Partnership - [Individuals & Families](https://www.glenmede.com/private-wealth-management/high-net-worth-individuals-and-families/) - [Family Office Services](https://www.glenmede.com/private-wealth-management/family-office-services/) - [Foundations](https://www.glenmede.com/endowments-foundations/foundation-investment-management/) - [Sustainable & Impact Investing](https://www.glenmede.com/sustainable-impact-overview/) - [Endowments](https://www.glenmede.com/endowments-foundations/endowment-foundation-management/) - [Financial Intermediaries](https://www.glenmedeim.com/) [![Contact Us](https://no-cache.hubspot.com/cta/default/23579600/c4c39f23-46ff-492e-9f41-770fb4a0aeb5.png)](https://cta-redirect.hubspot.com/cta/redirect/23579600/c4c39f23-46ff-492e-9f41-770fb4a0aeb5) - [About Us](https://www.glenmede.com/about-us/) - [Who We Are](https://www.glenmede.com/about-us/#who-we-are) - [Our History](https://www.glenmede.com/about-us/#our-history) - [The Board](https://www.glenmede.com/about-us/#the-board) - [Our People](https://www.glenmede.com/about-us/#our-leadership) - [Careers](https://www.glenmede.com/careers/) - A True Partnership - [Individuals & Families](https://www.glenmede.com/private-wealth-management/high-net-worth-individuals-and-families/) - [Family Office Services](https://www.glenmede.com/private-wealth-management/family-office-services/) - [Foundations](https://www.glenmede.com/endowments-foundations/foundation-investment-management/) - [Sustainable & Impact Investing](https://www.glenmede.com/sustainable-impact-overview/) - [Endowments](https://www.glenmede.com/endowments-foundations/endowment-foundation-management/) - [Financial Intermediaries](https://www.glenmedeim.com/) [![Contact Us](https://no-cache.hubspot.com/cta/default/23579600/c4c39f23-46ff-492e-9f41-770fb4a0aeb5.png)](https://cta-redirect.hubspot.com/cta/redirect/23579600/c4c39f23-46ff-492e-9f41-770fb4a0aeb5) #### Contact Us # Investment Strategy Brief   |   October  4, 2026 # Q3 2026 # Market Review   ![IS Brief Bull Bear](https://info.glenmede.com/hs-fs/hubfs/GLM%20Assets/IS%20Brief%20Bull%20Bear.jpg?width=550&height=314&name=IS%20Brief%20Bull%20Bear.jpg "IS Brief Bull Bear") ### Executive Summary - Large cap equities held up while bonds fell due to the surge in yields during Q3, with significant dispersion within asset classes. - Sticky inflation prompted the Fed's first rate hike since 2023, while rising term premiums pushed long-term yields higher. - Earnings growth remained robust, even after excluding the impact of several outsized contributors. - Recession risks remain contained, supporting a resilient outlook for economic growth and corporate profits. Several key developments are likely to shape the balance of the year. ### Asset class returns diverged as rising yields pressured fixed income ![IS Brief 2026-10-05 Chart 1](https://info.glenmede.com/hs-fs/hubfs/IS%20Brief%202026-10-05%20Chart%201.png?width=2000&height=1014&name=IS%20Brief%202026-10-05%20Chart%201.png "IS Brief 2026-10-05 Chart 1") Shown are third-quarter and year-to-date 2026 total returns for various asset classes represented by the following indices: U.S. Large Cap (S&P 500), U.S. Small Cap (Russell 2000), Int’l Developed (MSCI EAFE), Int’l Emerging (MSCI EM), Real Estate (FTSE EPRA/NAREIT Developed), Core Bonds (Bloomberg U.S. Aggregate), Municipal Bonds (Bloomberg Municipal), High Yield (Corp) (Bloomberg U.S. High Yield Ba to B), High Yield (Muni) (Bloomberg Municipal High Yield), Cash (FTSE 3-Month Treasury Bills). Past performance may not be indicative of future results. One cannot invest directly in an index. - After a strong first half, Q3 brought more volatility as interest rate sensitive asset classes underperformed in a rising rate period. - Year to date, equities continue to outperform, led by emerging markets and small cap, while investment-grade bonds have posted negative total returns. ### **Equities remained relatively resilient despite narrowing market breadth** ![IS Brief 2026-10-05 Chart 2](https://info.glenmede.com/hs-fs/hubfs/IS%20Brief%202026-10-05%20Chart%202.png?width=2000&height=985&name=IS%20Brief%202026-10-05%20Chart%202.png "IS Brief 2026-10-05 Chart 2") Shown on the left is the S&P 500, which is a market capitalization weighted index of U.S. large cap stocks. Shown on the right the share of stocks in the S&P 500 above their respective 200-day moving averages. Past performance may not be indicative of future results. One cannot invest directly in an index. - The S&P 500 remained resilient in the third quarter, reaching new all-time highs before finishing September near its quarterly peak. - However, there was significant dispersion beneath the surface, with more than 60% of stocks in the S&P 500 trading below their 200-day moving average. - The combination of strong index-level results and weak breadth is unusual. Prior instances of reduced breadth occurred alongside substantial S&P 500 drawdowns, whereas the index now sits only 1.5% below its recent high. ### The rise in Treasury yields was mostly driven by the term premium and real rates ![IS Brief 2026-10-05 Chart 3](https://info.glenmede.com/hs-fs/hubfs/IS%20Brief%202026-10-05%20Chart%203.png?width=2000&height=1009&name=IS%20Brief%202026-10-05%20Chart%203.png "IS Brief 2026-10-05 Chart 3") Shown on the left is the yield on 10-year U.S. Treasury bonds. Shown on the right is a non-exhaustive list of factors driving the term premium. Past performance may not be indicative of future results. One cannot invest directly in an index. - The 10-year Treasury yield rose from roughly 4.5% at the start of the third quarter to above 5.2% by quarter-end, extending the broader upward trend that began in February. - The move was driven largely by a higher term premium, as reduced Fed bond buying and more investment opportunities competing for finite capital have increased the compensation investors demand for holding longer-term debt. ### The Fed kicked off a new tightening cycle as progress toward 2% inflation stalls ![IS Brief 2026-10-05 Chart 4](https://info.glenmede.com/hs-fs/hubfs/IS%20Brief%202026-10-05%20Chart%204.png?width=2000&height=924&name=IS%20Brief%202026-10-05%20Chart%204.png "IS Brief 2026-10-05 Chart 4") Shown on the left in gray are Glenmede’s range estimates of the neutral federal funds rate over time (i.e., the level of rates that is neither economically stimulative nor restrictive) based on expectations for real interest rates via the Holston-Laubach-Williams model and Glenmede’s inflation expectations. Fed Funds Rate in blue is the target rate midpoint. The dashed blue line represents expectations for the forward path of rates based on fed funds futures pricing. The dashed green line represents expectations for the forward path of rates based on the median respondent in the Federal Open Market Committee’s dot plot projections. Projections and expectations are arrived at in good faith, but actual results may differ materially. Shown on the right are year-over-year changes in the U.S. Consumer Price Index (CPI), with headline CPI shown in blue and core CPI shown in green. Headline CPI reflects changes in prices across all goods and services, while core CPI excludes food and energy prices to measure underlying inflation trends. The gray band represents the Federal Reserve’s target range consistent with its price stability objective. - The Federal Reserve has begun raising rates again after holding the fed funds rate within the neutral range through much of the past year, with the Fed dot plot and futures pricing suggesting further increases could move policy back above the neutral range. - Headline inflation re-accelerated to roughly 4% in mid-2026 before easing back down, while core inflation has held closer to 2.5%, highlighting the inflation pressures the Fed is reacting to.   ### Two companies drove much of the earnings acceleration, but broader results were still robust ![IS Brief 2026-10-05 Chart 5](https://info.glenmede.com/hs-fs/hubfs/IS%20Brief%202026-10-05%20Chart%205.png?width=2000&height=944&name=IS%20Brief%202026-10-05%20Chart%205.png "IS Brief 2026-10-05 Chart 5") Shown on the left is the progression of S&P 500 earnings per share estimates on a year-over-year change basis for Q2 2026. Orange dots represent the reporting date for a few key companies. Shown on the right are year-over-year S&P 500 earnings growth, earnings surprise relative to consensus expectations, and net profit margins for companies reporting second quarter results. Blue bars reflect reported results, while green bars exclude Alphabet and Amazon’s reported investment gains on SpaceX and Anthropic to illustrate the influence of those companies on aggregate results. The S&P 500 is a market capitalization-weighted index of large cap U.S. stocks. Actual results may differ materially from expectations. Past performance may not be indicative of future results. One cannot invest directly in an index. References to individual securities should not be construed as a recommendation to buy, hold, or sell. - S&P 500 earnings growth reached roughly 50% year over year as reported, with most of the acceleration coming in July when Alphabet and Amazon reported large gains on their stakes in SpaceX and Anthropic. - Mark-ups on those investment stakes contributed roughly 20 percentage points to earnings growth, but growth remained a robust 32% excluding those gains. - Excluding Alphabet and Amazon investment gains, earnings still exceeded expectations by 9%, while net profit margins remained strong at 13%. ### Recession risks remain contained, supporting a resilient economic growth outlook ![Is Brief 2026-10-05 Chart 6](https://info.glenmede.com/hs-fs/hubfs/Is%20Brief%202026-10-05%20Chart%206.png?width=2000&height=981&name=Is%20Brief%202026-10-05%20Chart%206.png "Is Brief 2026-10-05 Chart 6") Shown on the left is Glenmede’s Recession Model, a tool developed by Glenmede to estimate the probability of a recession in the U.S. occurring within the next 12 months. The model is a balanced mix of (1) long-term excess indicators covering manufacturing, employment, and debt balances and (2) near-term leading indicators covering monetary policy, credit markets, business sentiment, and other economic trends. Shaded areas represent recession periods of the U.S. economy. Though created in good faith, there can be no guarantee that these indicators will be accurate. The model was established in 2015. The data shown for prior periods represent backtested results. Actual results may differ materially from projections. References to individual securities should not be interpreted as a recommendation to buy, hold, or sell. - Glenmede’s Recession Model shows that the probability of a U.S. recession over the next 12 months remains relatively contained for a mature economic expansion, supporting a resilient outlook for economic growth and corporate profits. - As the fourth quarter begins, investors will be weighing how Fed policy, inflation trends, and continued AI investment may shape the economic outlook, while political uncertainty and a robust IPO calendar test the market's appetite for risk. For more in-depth information on this topic, please reach out to your Glenmede Relationship Manager. 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