Q3 2026 Market Recap: What Happened and What I'm Watching Through Year-End

We're officially in Q4, and I wanted to take a few minutes to look back at what happened in the markets last quarter and share what I'm paying attention to as we head into the final stretch of 2026.

Looking at the full year, there's plenty to feel encouraged about. The S&P 500 returned approximately 12.8% through September 30, including dividends.

But the third quarter tells a more complicated story, and I think it's worth talking about. Because if you've looked at your portfolio lately and wondered why some investments haven't kept up with the headlines, there's a reason.

Why Diversification Still Matters

For my Nexa Wealth clients, the portfolios I manage go beyond U.S. stocks and bonds. They're invested across different areas, including U.S. companies of different sizes, international markets, bonds, real estate, and commodities. There's a reason for each one.

This quarter, some of those areas did well and others didn't. Energy and commodities have been among the better-performing areas of the market, while real estate and some international investments have had a tougher time. Bonds are also providing more meaningful income than they did when interest rates were near zero, even though their prices can still fluctuate.

Different investments respond to different economic conditions, which is why we own a mix of them. I don't expect every part of a portfolio to perform well at the same time.

There will be periods when a diversified portfolio trails the S&P 500, and others when having those additional investments helps soften the impact of a market decline. I'm much more interested in how a portfolio holds up over time and whether it continues to support someone's financial goals than whether we owned the best-performing investment in any particular quarter.

Q3 2026 Market Performance: What Drove Returns

The S&P 500 gained about 2.3% in Q3, adding to what has been a positive year for stocks overall. Corporate earnings have remained strong, and the continued investment in AI has helped support the market, even with ongoing concerns about inflation, interest rates, and geopolitical tensions.

Large technology companies continue to drive a significant portion of the market's performance, particularly those benefiting from AI investment. But there's also a lot happening beyond those familiar names.

The investment going into AI is creating opportunities for companies that manufacture semiconductors, build data centers, and provide the infrastructure needed to support all this growth. And over time, I think we'll see more businesses benefit from actually using AI to become more productive and profitable. Some of those opportunities may come from international markets as well.

I'm also more encouraged by what bonds can contribute to portfolios today. Higher yields provide more income than we've seen in quite some time, even though interest rates and inflation will continue to influence bond prices.

Of course, not every part of the market is performing equally well. Seven of the eleven S&P 500 sectors declined during the quarter, and smaller companies and real estate had a tougher time.

That's why owning investments across different parts of the market helps manage risk and reduces our dependence on any one area performing well. We don't know which companies, sectors, or countries will perform best next quarter or next year. And I don't want your portfolio depending too heavily on getting any one of those predictions right.

Overall, I'm encouraged by what we've seen this year, while still paying attention to the risks that could affect markets going forward.

My Take on AI

I don’t think AI is a bubble in the way people fear. The demand is real and businesses are actually paying for these tools and building around them, which is very different from the late 1990s when companies were building first and hoping customers would show up someday.

Where I do think we need to be watchful is the flood of money going into companies that have AI in their pitch but not necessarily a real business underneath it. Not all of them will make it and some of that investment will get wasted.

That said, the risks around AI are probably the most talked about thing in markets right now, and in my experience the things that actually catch investors off guard are usually the ones nobody was paying attention to. Owning a mix of different things is still the right answer either way, and it means you’re participating in what’s working without being entirely dependent on any one outcome.

On the Midterm Election: Should You Be Worried About Your Portfolio?

Elections are inherently emotional events. I get questions about them every time one comes around. Should we be doing something differently with your investments? What happens if the other party wins?

Depending on what you're reading or watching, you'd think the market is either going to take off or fall apart based on who wins. We've been through plenty of elections, though, and we've had great markets and terrible markets under both parties. There's a lot more driving the stock market than who's sitting in Washington.

Here is an article from J.P. Morgan about how markets have performed following midterm elections. Since 1950, the S&P 500 has been positive in the 12 months following every midterm election, with an average return of around 15%. Obviously, past performance doesn't tell us what will happen this November or afterward.

I'm paying attention to what could change after the election, particularly tax policy and anything that might affect certain industries or your financial plan. But I'm not moving your investments around based on who I think might win. Even if we correctly predict the election outcome, that doesn't mean we'll get the market's reaction right.

We're investing for the next 10, 20, or 30 years, and I don't want one election driving decisions that have much longer-term implications.

On Inflation and Energy Prices

I live in California, and I'm filling up my tank at close to $7 a gallon. Grocery shopping isn't exactly cheap either. So when I hear people talking about inflation coming down, I understand why that doesn't necessarily match what we're experiencing in everyday life.

One thing I'm watching is what's happening with energy prices, especially with the geopolitical tensions we've been seeing. When oil prices rise, the impact goes beyond filling up your car. It can affect transportation costs, the price of goods, and eventually what we're paying as consumers.

And while energy prices can come back down, that doesn't necessarily mean everything else gets cheaper. It's one of the reasons inflation has been so frustrating.

I'm also watching what this means for interest rates. If inflation stays elevated, the Fed may be less willing to lower rates, which has implications for both stocks and bonds. It's something I'll be paying attention to as we finish the year.

Instead of trying to predict the next policy move, consider whether your plan can function across multiple rate scenarios. Review how much cash you need, how long your fixed-income holdings should be, and whether your debt strategy still fits your situation.

Some More Thoughts

I know there's plenty to worry about if you spend enough time watching the news. And I understand the temptation to want to do something when things feel uncertain.

But remember, we didn't build your portfolio assuming every quarter would be a good one. There will be periods when certain investments struggle, when markets are volatile, and when we're questioning what's going to happen next.

That doesn't mean we ignore what's happening or that we never make changes. I'm paying attention, and we'll make adjustments when there's a reason to. I also don't want us making decisions based on what happens to be in the headlines that week.

As we head toward year-end, I'll be reaching out for our planning conversations. We'll be looking at your investments, any tax planning opportunities, and what's coming up in your life that we should be thinking about.

And if something has changed this year, whether it's your income, a major expense, or a decision you've been putting off, please let me know. I'd rather we talk about it now while there's still time to consider our options before December 31.

As always, I'm here if you want to talk.

- Renee

This article is for educational purposes only and is not individualized investment, tax, or legal advice. Investment involves risk, including possible loss of principal. If you're a Nexa Wealth client, I'll be reaching out as we head into year-end to review your investments and any planning opportunities worth addressing before December. And if you're new here and wondering whether your own investments are positioned appropriately for your goals, I'm always happy to have a conversation. You can reach me here.