Q3 Recap: Rising Rates Don't Lift All Ships

• US large-cap equities topped performance tables while small- and mid-cap stocks posted the weakest returns, as smaller companies' shorter-duration debt forces more frequent refinancing at higher rates
• Energy led US sector performance on crude oil prices touching $100/barrel amid Iran War uncertainty, while high-yield sectors (Real Estate, Utilities) and cyclicals (Industrials, Materials) struggled as bond yields competed with dividends and refinancing concerns mounted
• Internationally, technology-heavy markets like Japan and China outperformed, while value-oriented European markets faltered; the firm maintains a constructive outlook with overweight positions in US equities and technology, adding long-maturity treasury positions as downside protection

Q3 2026 Market Summary: Rising Rates Impact Equities Unevenly

Key Performance Trends

Rising interest rates created divergent performance across global equity markets in Q3 2026. US large-cap stocks outperformed, while small- and mid-cap equities posted the weakest returns, reflecting smaller companies' heightened sensitivity to rate increases due to shorter-duration debt requiring more frequent refinancing.

Sector Performance

Winners:

• Energy led all sectors as crude oil prices exceeded $100/barrel amid Iran War uncertainty
• Technology and Communication Services outperformed the S&P 500, driven by mega-cap growth companies with strong cash flows and limited debt reliance
• Healthcare posted strong gains from pharmaceutical and biotech breakthroughs

Losers:

• Real Estate and Utilities struggled as higher bond yields competed with their dividend offerings
• Industrials and Materials underperformed due to debt-intensive business models and refinancing concerns

International Markets

Asian markets outperformed, particularly:

• Japan benefited from structural earnings improvements, wider margins, weaker yen, and semiconductor rally
• China rebounded after three consecutive negative quarters, though remained negative year-over-year amid tariff headwinds

European markets lagged due to value-oriented, debt-intensive companies facing refinancing pressures. Canada and UK generated positive returns through higher energy sector exposure.

Investment Outlook

The firm maintains a constructive stance, assigning highest probability to market-positive scenarios while remaining overweight US equities and technology. They've added long-maturity treasury positions as downside protection given current attractive yields. Risk monitoring focuses on technical analysis, Fed policy response, and market fundamentals, with recent exceptional earnings growth supporting their optimistic view despite elevated interest rates.