WEEKLY INSIGHTS

October 5, 2026

Author: Megan Horneman | Chief Investment Officer

Key Takeaways:

Global equities end the quarter in positive territory despite September sell-off.
Fed raises rates for the first time since 2023.
Inflation remains sticky.
Tech trade resumes leadership in 3Q.
Global bond yields rise sharply in 3Q.

3Q26 Market Recap – September Sell Off Fails to Ruin Entire Quarter

Despite the first Fed rate hike since 2023, surging bond yields, sticky inflation, and high oil prices, the MSCI AC World Index was able to post a modest gain in the third quarter. This was despite September living up to its historically weak reputation as volatility surged and global equities saw their second-worst month this year. In this Weekly Insights, we offer a review of 3Q26 from an economic and asset class perspective.

Fed raises rates: The Federal Reserve unanimously agreed to raise its benchmark rate to a range of 3.75-4.00% in September. The committee noted that “inflation remains elevated.” In addition, the rate hike “will support a timelier return to 2% inflation.”
Inflation remains elevated. Inflation, at the core level, as measured by the Consumer Price Index and PCE Core is growing 2.4% and 3.0%, respectively on a year over year basis.
Manufacturing strong. As the AI build out continues, the ISM Manufacturing Index has been in expansion territory for the past nine consecutive months.
Consumer continues to spend: Retail sales have been surprisingly resilient in the face of rising energy prices. Core retail sales grew at the fastest month over month pace since December 2024 in 3Q.
Housing gets hit: Housing data has struggled with higher home prices and soaring mortgage rates. The 30YR mortgage rate finished the quarter at the highest level (7.3%) since 2023.
Labor market cools: The U.S. economy added only 29K jobs in September and the unemployment rate ticked higher (to 4.2%).

Global equities: Near record highs despite seasonal weakness: The MSCI AC World Index rallied for the second consecutive quarter as solid earnings overshadowed higher interest rates, globally.

Japanese equities lead: The MSCI Japan Index led the global rally. Japanese banks led the gains as the Bank of Japan raised interest rates for the second time this year.
Concentration in the U.S.: The resumption of the tech trade won out in 3Q as the Russell 1000 Index outperformed the Russell 2000 by 903 bps in 3Q. In addition, while the Nasdaq (+2.6%) and S&P 500 (+2.3%) rallied, the S&P 500 Equal Weight Index declined (-1.9%).

Global bonds: A global bond sell off: The Bloomberg Aggregate Index posted its worst quarterly decline since the COVID induced inflation period in 2022. Surging debt and stickly inflation led to the weakness.

Long term bond yields surge: The weakness was led by long term bonds as the 30YR Treasury yield rose to the highest yield since 2002, the German 30YR to the highest since 2011 and the Japanese 10YR since 1996.
Municipals fall sharply: The Bloomberg Managed Municipal Index posted its third worst quarterly decline on record as demand fell on surging yields.

Commodities: The Bloomberg Commodity Index rose for the second quarter this year as geopolitical tensions supported prices.

Energy leads gains: Energy was the biggest beneficiary of the ongoing war with Iran.

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Your Economic and Market Detailed Recaps

Fed’s preferred indicator unchanged.
Manufacturing prices jump.
Labor market cools in September.
Global equities fall on weak U.S. data.
Bonds fall despite odds of an imminent rate hike falling.
Crude oil takes a breather as emergency supply is released.

Weekly Economic Recap — SInflation Unchanged; Labor Market Cools

Consumer confidence as measured by the Conference Board fell to the lowest level since 2014 in September. Both confidence on the present situation and future conditions declined. Consumer confidence in the labor market fell to the lowest level since 2021 (jobs plentiful vs. jobs hard to get).

Job openings as measured by the JOLTS report showed job openings fell to the lowest level in five months in August. However, layoffs fell to the lowest level since March 2025. The quits rate which measures those voluntarily leaving their job is at the lowest level since 2020.

The Fed’s preferred inflation indicator (i.e., PCE Core YoY) remained unchanged on a year over year basis in September (+3.0% YoY). However, the super core measure which includes services but excludes housing is rising 3.5% on a year over year basis.

Personal spending exceeded personal income in August which drove the personal savings rate to the lowest level since 2022.

Manufacturing as measured by the ISM Manufacturing Index dipped slightly in September but has been in expansion territory (a level above 50) for the past nine consecutive months. The weakness was driven by export orders while prices paid jumped to a four month high.

The U.S. economy added fewer jobs than anticipated in September (+29K vs. +90K). In addition, the unemployment rate rose modestly (+4.2% vs. 4.1%). The weakness was concentrated in government, temporary workers and information services jobs.

Weekly Market Recap — Global Equities Fall on Weak U.S. Data

Equities:

The MSCI AC World Index declined last week as a rally in U.S. tech failed to lift the broader market. U.S. equities declined as a weak jobs report fueled fears of an economic slowdown. The Nasdaq and the Russell 1000 Growth rallied for the week as strong earnings fueled a rebound in semiconductor names. Europe and the UK led the global decline on rising bond yields and economic uncertainty.

Fixed Income:

The Bloomberg Aggregate Index fell for the fifth consecutive week despite odds for a rate hike in October declining on the weak jobs report. Long term Treasuries and EM debt led the drop in fixed income. Municipal bonds rebounded after six consecutive weekly declines as higher yields drew demand.

Commodities/FX:

The Bloomberg Commodity Index posted its worst weekly drop in nine weeks led by crude oil. Crude oil declined after the release of crude and diesel emergency stockpiles. Copper posted its worst week since March on a strong U.S. dollar and concern about demand slowing in China.

Footnotes: Data is as of September 2026.
Data Source: Bloomberg Finance LP, Verdence Capital Advisors.

Frequently Asked Questions:

Did the Fed raise interest rates in Q3 2026?

Yes. In September 2026, the Federal Reserve unanimously raised its benchmark rate to a range of 3.75% to 4.00%, its first rate hike since 2023. The committee noted that inflation “remains elevated” and said the hike “will support a timelier return to 2% inflation.”

Why did bond yields rise in the third quarter of 2026?

Surging debt and sticky inflation drove a global bond sell-off in Q3 2026. Long-term bonds led the decline. The 30-year Treasury yield rose to its highest level since 2002, the German 30-year yield to its highest since 2011 and the Japanese 10-year yield to its highest since 1996.

How did global stocks hold up in Q3 2026?

Global equities posted a modest gain in Q3 2026, the second consecutive quarterly rally for the MSCI AC World Index, as solid earnings overshadowed higher interest rates. Japanese equities led the global rally, driven by bank stocks after the Bank of Japan raised rates for the second time this year.

Why was September 2026 a weak month for stocks?

September lived up to its historically weak reputation in 2026. Volatility surged, and global equities had their second weakest month of the year. Despite the September sell-off, global stocks still finished the third quarter with a modest gain.

What was the U.S. inflation rate in Q3 2026?

Core inflation remains above the Fed’s 2% target. Core CPI is growing 2.4% year over year, and core PCE, the Fed’s preferred inflation measure, is growing 3.0%. The “super core” measure, which includes services but excludes housing, is rising 3.5% year over year.

Is the U.S. labor market slowing down?

Yes, the labor market is cooling. The U.S. economy added only 29,000 jobs in September 2026, below the 90,000 expected, and the unemployment rate rose to 4.2% from 4.1%. Job openings fell to a five-month low in August, and the quits rate is at its lowest level since 2020.

How high are mortgage rates in 2026?

The 30-year mortgage rate finished Q3 2026 at 7.3%, its highest level since 2023. Higher home prices and rising mortgage rates weighed on housing data throughout the quarter.

Why did commodity prices rise in Q3 2026?

Geopolitical tensions supported commodity prices in Q3 2026, and the Bloomberg Commodity Index rose for the second quarter this year. Energy led the gains as the largest beneficiary of the ongoing war with Iran.

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