Q3 2026 Economic Commentary

Hello, 
 
I hope all is well and that you are enjoyed a fantastic summer! 
 
The markets have remained resilient throughout the first half of 2026 despite ongoing uncertainty on multiple fronts. The S&P 500 index has gained 12.63% YTD as of August 24th, 2026 [1]. The Dow Jones index has gained 11.14% YTD as of the close of business August 24th, 2026 [2].  Domestic and international equity markets have shrugged off continued inflationary pressures throughout the year while bonds have not fared as well. The U.S. Aggregate Bond Index in down -.15% YTD as of August 24th, 2026, a sharp contrast to the strong gains of 2025 [3]. As shared in the last economic commentary, lofty expectations for 2026 were driven by the belief that the Fed would lower rates at least once if not more during the year, and that we would see corporations continuing to spend aggressively on AI. While the Fed has remained frozen on interest rates, global spending on AI continues at a feverish pace. Goldman Sachs Research recently provided an estimate that points to over $1 trillion of AI-related investment around the globe in 2026, including $581 billion in the U.S. alone [4].  
 
What lies ahead for our markets- and our economy- as we enter the fourth quarter of 2026? Recent inflation data showed CPI at 3.4% annualized in July- down from the 3.8% in April, yet sharply higher than the 2.7% recorded in December of 2025 and 2.4% in February of 2026 [5]. Despite numerous challenges, it’s promising to see a slight softening inflation in the last few months. One consequence of the ongoing inflationary pressure is the substantial rise in treasury yields, specifically the 30-year Treasury which topped 5.33% on August 18th, the highest level we have seen in 19-years [6]. While we have seen some relief on the inflation data since April, the root cause of this sticky pricing pressure is the ongoing closure of global shipping via the Strait of Hormuz. This past weekend from Friday August 21st through Sunday August 23rd, fewer than 20 commodity carrying vessels transited the Strait [7]. To put this in perspective, prior to the conflict in the Middle East approximately 100 to 140 ships crossed the Strait daily, representing around 20% of the world’s oil and liquified natural gas. Still, thanks to initiatives shared in the last economic commentary, brent crude oil prices have remained well contained, sitting at $88.37 a barrel as of August 25th, 2026. While the Strait remains closed, our economy has become increasingly K shaped.  The top 10% to 20% of earners in the U.S. account for roughly 50% to 60% of all U.S. consumer spending, while lower-and middle-income households face greater challenges with the higher costs of groceries, rent, and other necessary expenses [8]. There is much debate on just how much sustained higher costs on food, healthcare, education, and housing have had on Americans, but through it all, from my perspective, we have remained vigilant and committed to living life on our terms. To contain rising long-term treasury yields and attempt to protect the consumer from higher borrowing rates, the federal government recently announced that our treasury department would double its long-dated bond buyback operations to at least $4 billion and potentially increase this effort even further if needed to support credit markets. Imagine using a credit card to pay for your mortgage. That is where we stand currently as we navigate and combat the impact of the conflict in the Middle East.  
 
Our most positive news is the continued strength in corporate earnings! According to FactSet, among the 88% of S&P 500 companies that have reported as of this commentary, 86% of those companies reported a positive EPS surprise, and 76% reported a positive earnings surprise. The second-quarter earnings for S&P 500 companies jumped about 50.4% from a year earlier with revenue growing approximately 15%, currently on pace to be the highest earnings growth for U.S. companies since Q2 of 2021 [9]! U.S. real GDP decreased to 1.5% annual rate in Q2 of 2026, down .5% from the previous quarter, and the unemployment remained ticked down to 4.1% in July of 2026.  
 
The question of what the Fed will do with rates in these final months of 2026 remains anyone’s guess. The markets are currently not pricing in a rate cut, and it appears likely that the Fed will keep rates the same throughout 2026. Until we can get inflation back to levels that the Fed is comfortable with, I expect the path of the Fed will remain uncertain. As I shared in past commentaries, the adaptability and continued growth of our economy starts and end with us, the American consumer. Overall, consumer debt in the U.S. has remained at $18.8 trillion through the second quarter of 2026, mirroring the end 2025. US credit card debt rose by $21 billion in the second quarter reaching $1.26 trillion [10]. This is meaningful because the average credit card interest rate in the U.S. has risen to 23.8%. These higher rates have led to elevated credit card and auto loan delinquencies translating to about 4.7% of total outstanding debt being in some stage of delinquency. That being said, we do remain far below levels that peaked during the Great Recession, confirming that Americans remain resourceful and committed to meeting debt obligations. Ultimately, as I have stated in past commentaries, it is important that inflation be contained and lowered, with the most impactful variable being energy prices. For now, we continue managing surprisingly well.   
  
While so much remains uncertain, and tricky when it comes to the economy and markets, I am cautiously optimistic. As we have historically, I believe whatever situation we encounter, we will continue persevering through any adversity!   
 
I remain steadfast in my belief in long term planning, preparation, and proper diversification, while aligning your portfolio to your comfort level for risk. Time and time again, it is proven that markets cannot be timed. No one has a crystal ball, and no one knows what major world event will occur next. Our best strategy is to be well-diversified, across asset classes and remain optimistic and vigilant during times of fear and panic. Our companies remain some of the best in the world, providing goods and services to every corner of the earth. Our people are some of the brightest and hardest working in the world! 
 
Thank you for the opportunity to serve you. My priority remains and always will be to ensure that you continue to receive high-quality guidance and a client service experience second to none. While I continue to reach out via phone and e-mail, please know that I am available via Zoom, Facetime, any other digital technology you prefer and in person if you would like to meet. I am happy to meet with you at any one of my offices or at your home or near your home, whatever you prefer and with whatever you are most comfortable. 
 
Wishing you, your family, friends, colleagues, and community continued hope, health and positivity in the coming weeks, months and beyond! 
 
Thanks!