Q3 2026 Market Review
10/05/2026Blog Categories
By Clint Edgington
Renewed Middle East Tensions in Q3 repeated the higher commodity prices and inflationary pressures, and market dynamics we discussed in our Q1 Market Review. Q2 brought a partial reversal as tensions eased, commodities prices fell, and Growth stocks rebounded.
Q3 reversed the reversal and looked more like a smaller replay of Q1 but with one important difference: this time the Fed functioned as if these inflationary pressures appear not to be temporary.
Same Story, Different Fed Response
The Fed's September minutes pointed to escalating geopolitical tensions pushing energy prices higher and added to inflationary pressures. With inflation remaining elevated and economic activity resilient, the Fed raised the federal funds target range by 0.25%.
The Positive Surprise: Earnings and Labor
The offset is that the underlying economy has remained surprisingly resilient. Corporate profits rose to $4.71 trillion in Q2 from $4.33 trillion in Q1. For Q3, FactSet reports that analysts raised S&P 500 earnings estimates by 1.4% during the quarter - unusual, since estimates normally decline as a quarter progresses.
The labor market has also held up better than slowing payroll growth alone might suggest. September payrolls increased just 29,000, but unemployment remained 4.2%. The Fed described the labor market as broadly stable and close to maximum employment.
That resilience helps explain why equities have absorbed higher rates better than bonds. The S&P 500 still gained 2.3% during Q3 despite renewed commodity inflation and tighter monetary policy.
What Comes Next?
The most obvious question is whether Q3's pattern reverses again if Middle East tensions ease. Q2 already showed what that can look like. If they don’t ease; how long will the resilient earnings and labor market last in the face of higher interest rates? That tension - persistent inflation versus resilient fundamentals - is the key question heading into Q4.
Renewed Middle East Tensions in Q3 repeated the higher commodity prices and inflationary pressures, and market dynamics we discussed in our Q1 Market Review. Q2 brought a partial reversal as tensions eased, commodities prices fell, and Growth stocks rebounded.
Q3 reversed the reversal and looked more like a smaller replay of Q1 but with one important difference: this time the Fed functioned as if these inflationary pressures appear not to be temporary.
Same Story, Different Fed Response
The Fed's September minutes pointed to escalating geopolitical tensions pushing energy prices higher and added to inflationary pressures. With inflation remaining elevated and economic activity resilient, the Fed raised the federal funds target range by 0.25%.
The Positive Surprise: Earnings and Labor
The offset is that the underlying economy has remained surprisingly resilient. Corporate profits rose to $4.71 trillion in Q2 from $4.33 trillion in Q1. For Q3, FactSet reports that analysts raised S&P 500 earnings estimates by 1.4% during the quarter - unusual, since estimates normally decline as a quarter progresses.
The labor market has also held up better than slowing payroll growth alone might suggest. September payrolls increased just 29,000, but unemployment remained 4.2%. The Fed described the labor market as broadly stable and close to maximum employment.
That resilience helps explain why equities have absorbed higher rates better than bonds. The S&P 500 still gained 2.3% during Q3 despite renewed commodity inflation and tighter monetary policy.
What Comes Next?
The most obvious question is whether Q3's pattern reverses again if Middle East tensions ease. Q2 already showed what that can look like. If they don’t ease; how long will the resilient earnings and labor market last in the face of higher interest rates? That tension - persistent inflation versus resilient fundamentals - is the key question heading into Q4.