Market Commentary & Forecast

In the third quarter, investors again looked past geopolitical tensions to focus on the generational opportunity of Artificial Intelligence and its broader effects across the economy, even as rising costs of capital pressured margins and price-to-earnings multiples for many companies. Enthusiasm for the overall path of earnings has pushed the S&P 500 Index higher by 13.0% year-to-date and the global equity benchmark, the MSCI All-World Index, higher by 13.5%. Both indices continue to set records.* We enter the fourth quarter with much of this investment rationale intact. Corporate earnings remain robust, capital spending is exceptionally strong, productivity is improving, and the global AI buildout is creating a powerful investment cycle across semiconductors, networking, power generation, utilities, electrical equipment, heating and cooling, construction, and select software. All this has generated rates of earnings growth typically seen only when economies are accelerating out of deep recessions. Headwinds remain. Energy markets remain vulnerable to the disruptions of war; central banks are again confronting inflation pressures driven chiefly by supply constraints, rather than by the excessive consumption that their tools are designed to combat. At the same time, an economy and stock market predicated increasingly on the acceleration of AI appear vulnerable to any perceived retrenchment in that technology, just as public concerns mount and political resistance to AI hardens. These crosscurrents and complexities have been central to our thinking throughout the summer and early fall. *Unless otherwise specified, all data is per Bloomberg LP as of the close of trading on September 29, 2026.

There are quarters that simply add another chapter to market history, and those that reflect profound changes in how investors think about risk, opportunity, and the forces that drive long-term returns. The second quarter of 2026 may ultimately prove to be the latter—one in which investors looked resolutely through all manner of static, and instead responded to long-term signals from impressive fundamentals. Static was not hard to find. The United States and Iran moved dangerously close to a broader regional conflict; the Strait of Hormuz, through which nearly one-fifth of the world's oil supply transits, was temporarily closed and then reopened, only to be closed once again. Inflation reaccelerated as energy prices surged—posing a monetary conundrum only made more salient by a significant leadership transition at the Federal Reserve. Trade policy once again became a source of uncertainty as courts challenged portions of the administration’s year-old tariff regime.

The conflict in Iran has suddenly blunted what had been impressive momentum to start the year. Earnings expectations had been improving, business activity was expanding, and market leadership was broadening after years of dominance by the mega-cap growth complex. In fact, the first two months of 2026 saw small-cap stocks and the equal-weight S&P 500 outperforming the tech-heavy cap-weighted S&P 500, while global equities—particularly Emerging Markets and Japan—largely outpaced the U.S. Since the launch of the war on February 28, the YTD outperformance of those segments has been reduced or reversed. Yet typical safe havens such as Treasuries and gold have not delivered the ballast expected of them at moments of equity volatility: on the contrary, they have repriced alongside other major asset classes. Why is that? What makes this moment different from past crises? I believe the direct market and economic impacts of the current “combat operation” deserve a closer look, and that several aspects of it shed new light on crucial ongoing geopolitical transitions. At the same time, Artificial Intelligence and other secular investment themes seem poised to keep evolving on their own terms.

The year 2025 surprised even the optimists. Rarely have we observed simultaneous outsized returns across equities, fixed income, precious metals and key industrial commodities. Powerful secular forces—AI investment, geopolitical realignment, potent new industrial policy, and continued healing in global supply chains—overrode concerns that tighter trade policy and geopolitical fragmentation would stifle commerce. Indeed, while GDP statistics started 2025 on a negative note, U.S. growth is still expected to notch a healthy 2% for the full year.

If ever there was a moment when markets “climbed a wall of worry,” this is one. Investors face a complicated backdrop as we enter the final quarter of 2025: lower inflation and resilient corporate earnings on one side, and shifting trade regimes, mounting fiscal concerns, and persistent geopolitical volatility on the other. All while market indices notch new highs and key P/E multiples keep expanding. Yet this feels different from other periods in which markets trended higher amidst uncertainty. It is crucial today that we go beyond the ordinary rigors of parsing conflicting economic data and earnings statements, and confront in a clear-eyed way the tectonic shifts underway in the digital economy, the structure of global manufacturing, and the geopolitical order.

The second quarter of 2025 proved that policy uncertainty is not a passing feature of the contemporary investment landscape: on the contrary, it all but defines the landscape. Defeating earlier hopes that pro-growth policies might usher in a return to macroeconomic normalcy, a sweeping new wave of U.S. trade actions in early April jolted global markets, sending equities into correction territory and creating sharp dislocations in fixed income and currency markets.