After an abrupt 5% bounce in late July/early August, the broad US equities market as measured by the S&P 500 mostly traded back and forth in the 7,500–7,800 range for most of the third quarter of 2026, whipsawed by alternatively hopeful and pessimistic news from the Persian Gulf, coupled with stubbornly higher inflation and tightening monetary policy from the Federal Reserve. Despite reaching new highs over 7,800 at several points, the S&P 500 ended Q3 at 7,651.54, up about 2.0% from its level at the beginning of July. Bond prices fell, with US Treasury 10-year yields climbing to 5.23%, their highest level in 19 years (when bond yields rise, bond prices fall). The US economy, if not performing at a stellar rate, at least held its own, much of which may be due to support from the ongoing AI infrastructure buildout. GDP data indicate a growth rate of 2.20% during the period, and the Labor Department reported a relatively low unemployment rate of 4.2% at the end of September.
Pain at the Pump: Oil, Iran, and Consumer Prices
The most visible casualties of the ongoing war in the Persian Gulf are the affordability of gasoline and diesel fuel. According to estimates from the American Automobile Association, the cost of a gallon of gasoline for US drivers rose 22–69% from the onset of hostilities to late August (the smallest increase, 22%, was recorded in California, where the price per gallon is already one of the highest in the country). Diesel, up an average 39% nationally versus the previous year, has added billions to the cost of operating large and commercial trucks, tractors, and other heavy equipment. Such dramatic increases highlight the pricing difficulties currently faced by many American consumers as a direct result of ongoing hostilities in the Middle East. But even beyond consumer impacts, energy price instability can be expected to ripple across multiple industries, including agriculture, shipping, construction, airlines, automobiles, and many more.
The Fed, Interest Rates, and Inflation
Near the end of the quarter, the US Federal Reserve announced its first interest rate hike in three years, raising the Fed funds 0.25%, to a range of 3.75–4.0%. Comments from Chair Walsh and the other governors indicate a firm intention to hold inflation in check and move it back toward the Fed target range of 2.0%. Further indications in the minutes of the September 15–16 meeting suggest the possibility of at least one more increase before the end of the year.
Higher interest rates—especially as indicators of the need to control stubborn inflation—combined with the historic $40 trillion level of US debt reached in August caused jitters in the fixed-income markets, both domestically and internationally. Such worries can be readily observed in the upward trend in the US 10-year Treasury bond as well as sovereign debt of other governments around the world. The one silver lining here may exist for fixed-income investors who may be able to lock in currently elevated yields by reinvesting proceeds from maturing instruments and cash into moderately extended maturities.
Looking Ahead
Further gains from equities before the end of the year are certainly possible, but as market leadership continues to narrow among large-cap tech and AI-forward stocks, diversification into international stocks and selected domestic holdings with established dividend-paying companies may afford opportunities to capture desirable returns. In the current interest rate and inflation environment, bonds may provide income and diversification benefits, although their market value remains sensitive to interest rates and othe risks.
Your Rothschild advisor is always available to discuss in detail current financial, investment, and economic circumstances in light of your specific holdings and situation. Especially as we move toward the end of the year, it’s a good time to review your portfolio with respect to tax planning and other matters. Please let us know how we can help.
