Q4 2026 Macro Outlook

The full slide deck is available as a PDF below. Data are as of October 14, 2026, and quarterly returns are as of September 30.

Highlights from the deck

• The quarter. Commodities lead 2026 at +55.2% as oil rallied, and Energy returned +17.2% in the third quarter, with Information Technology second at +7.2%. Rate-sensitive sectors lagged as the 10-year Treasury yield moved through 5%: Utilities fell 12.4% and Industrials 9.7%.
• Oil and Hormuz. Brent bottomed at $71 on July 1, when tracked tanker transits through the Strait of Hormuz peaked during the June truce. Tracked traffic has since fallen to about one a day, against 48 a day in 2025, and Brent is back near $109.
• The Fed. The FOMC raised rates a quarter point to 3.75–4.00% on September 16, and futures are pricing about 3.5 more hikes. In our view that is more tightening than inflation calls for, with headline CPI at 3.7% and core at 2.6%.
• Rates. The 10-year yield rose 85bp in the third quarter to a peak of 5.29%. The 10-year TIPS yield of 2.93% is about twice its average since 1999, while the breakeven of 2.32% is close to its average, so the rise has come from real rates. In our view, with yields above 5%, equity returns will depend more on earnings growth.
• Rising yields and stocks. The S&P 500 finished higher in four of the last five long rises in the 10-year yield, and earnings grew in all five.
• Labor and growth. Unemployment is 4.2%, payrolls have averaged 66,000 a month over six months, and real GDP has averaged 1.6% over the last three quarters.
• AI capex. Capital spending at the five largest hyperscalers grew 54% in 2024 and 75% in 2025. Consensus expects growth to peak this year and capex to reach 44% of revenue in 2027, with free cash flow falling below zero, which puts the return on that spending in focus.
• Earnings and valuation. Consensus expects S&P 500 earnings growth of 32.4% this year and 15.9% next year. The forward P/E has fallen from 22.2x to 19.0x this year while the index returned 12.7%, all of it from rising earnings. At the March 2000 peak the index traded at 26.8x on an 8.9% net margin; today it is 19.0x on a 16.9% margin.
• Where valuations stand. Technology’s premium to the market has narrowed to 13%, against 25% over five years, and Utilities trade below their 20-year average relative multiple. Midcaps trade at 76% of the S&P 500’s multiple, against 91% over 20 years.
• The bull market. The bull market that began in October 2022 turned four this month. Historically, year four of a bull market has averaged +12% and year five +16%, with wide variation across cycles. Past performance does not guarantee future results.
• International. International stocks trade at 64% of the U.S. forward multiple, against 81% on average since 2008, and consensus expects Emerging Market earnings to grow 64.6% this year. Korea trades furthest below its own history.
• Our range. Our estimated range for the S&P 500 at year-end 2027 is 7,400 to 8,500, based on 18x $411 of forward earnings on the downside and 20x $425 on the upside. The range is our opinion as of October 14, 2026; the index may trade outside it.