2026 Q3

3rd Quarter Market Review & Outlook

Welcome to Harvest Financial Advisors quarterly update. I am Marc Henn*, CEO and founder, and this video update is for the quarter ending September 30, 2026.

In today’s update, we’ll cover what we saw in the U.S. stock market and economy over the past quarter, and what we see ahead for the remainder of 2026 and into 2027. We’ll talk about why the 10-year Treasury yield has become a bigger story than we expected, what’s happening in the bond market as a result, why we still don’t see a recession on the horizon despite real headwinds, and how strong corporate earnings growth is colliding with a market that’s starting to look long-in-the-tooth.

Let’s start with the markets. Equity markets remain up for the year, and that’s a good thing. But as we look ahead, we expect more volatility than we’ve seen recently. Markets don’t move in a straight line forever, and after the kind of run we’ve had, it’s reasonable to expect some bumpier stretches ahead.

If you recall from last quarter’s video, I mentioned that the bond market can send signals to the stock market. Specifically, I said that if the 10-year Treasury yield moved higher, it could signal growing concern over inflation. I also said my “trouble zone” for equity markets was the 10-year yield staying consistently above 4.7%.

Well, today that yield sits at 5.24%. As a reminder, it started this year around 4.20%. That is a significant move, and it’s one we’re watching very closely.

This jump in rates isn’t just a concern for stocks—it’s also been a real problem for the bond market. As yields on quality bonds rise, the prices of those bonds fall. We’ve seen that play out this year, with the Bloomberg Aggregate Bond Index returning negative 2.75% year to date.

Here’s the good news: our fixed income portfolios have performed considerably better than that index. Going into this year, we did not agree with the general consensus that the Federal Reserve would need to cut interest rates. Because of that view, we’ve been hedging against rising rates all year long, and that positioning has helped cushion our clients’ fixed income holdings against this rate spike.

Turning to the broader economy, we still see Gross Domestic Product continuing to rise through 2028, though we expect next year to be sluggish. Again, think of it less as a slowdown turning into a recession, and more as growth that’s still present, but not as energetic as we’ve seen recently.

The consumer is still spending. We expect continued growth in retail sales for the remainder of 2026 and into 2027, though we may be entering a period of slowing growth on that front too.

We’ve talked before about the K-shaped economy, and we don’t see that dynamic going away. Higher interest rates and inflation continue to squeeze household budgets and hamper savings for many families, even as other parts of the economy—and other households—remain on much firmer footing.

Despite that pressure, we do not see a recession on the horizon, and the overall business environment remains favorable. Many people in the workforce feel uneasy right now, but job growth has remained stable, and that stability matters.

Now let’s talk about earnings, because this is an important piece of the picture. We are seeing tremendous corporate earnings growth this year—consensus estimates have S&P 500 earnings growing 24% – 32% in 2026. Looking into 2027, that growth is expected to decelerate, but it remains healthy, with consensus estimates around 11% – 15%.

That’s the encouraging part. The more cautious part is that we are growing concerned about this market becoming long-in-the-tooth. Strong earnings growth is a real and legitimate tailwind, but after the run we’ve had, we think it’s worth acknowledging that markets don’t sustain these kinds of gains indefinitely.

In fact, it’s worth remembering just how rare sustained runs like this one actually are. Looking back at the modern S&P 500 era—dating from 1926 forward— there are very few times we see double digit growth 4 years in a row like we would have if the year ended today.  The prior one was in the late 1990s, and the one prior was 1949-1953.  In fact there has only been one stretch of five consecutive years of double-digit annual returns: 1995 through 1999. That kind of streak is the exception, not the rule.

That’s a big reason why our equity portfolios continue to carry less risk than the broader market. We’ve intentionally positioned that way to help manage the risk that markets could move more sharply than the underlying economy or earnings picture would suggest.

Beyond the rate environment and market valuation concerns, we’re also watching a few other headwinds. The ongoing conflict in Iran remains a source of geopolitical uncertainty, particularly around energy markets. Inflation continues to squeeze buying power and hamper savings for many households. And we continue to watch the circular nature of AI-related capital investment across the market—a dynamic we’ve flagged in past updates and continue to monitor closely.  It is important to note that AI infrastructure spending is driving roughly half of all S&P 500 earnings growth.

So, to summarize: equity markets remain up for the year, though we expect more volatility ahead. The 10-year Treasury yield has moved well above our trouble zone, from around 4.20% at the start of the year to 5.24% today, and that move has pressured bond prices, though our hedged fixed income portfolios have held up notably better than the broader index. GDP growth should continue through 2028, albeit at a slower pace next year, and the consumer remains resilient even as the K-shaped economy persists. We don’t see a recession ahead, and job growth remains stable. Corporate earnings growth has been tremendous this year and should remain healthy in 2027, but with markets maturing, we remain intentionally positioned with less risk than the broader market to help manage what could be a bumpier road ahead.

If you have any questions, please do not hesitate to contact our office, and as always, we thank you for your trust.

*Marc Henn is a licensed investment advisor with Harvest Financial Advisors, a registered entity with the U. S. Securities and Exchange Commission