After a strong start to the year, markets slowed during the third quarter, showing only modest gains across the broad market and some sectors giving up some of their first–half gains. The big story for the third quarter was rising interest rates across the bond market due to inflation concerns, stronger-than-expected economic and investment growth, and concerns over federal deficit levels.
As always, our partners at East Bay Investment Services remind us we should take a measured, balanced approach to assessing the markets and the economy. You can read their full report here or watch their video presentation.
Here are the summary, positive points, and reasons for concern as we roll into the fourth quarter:
Summary:
- Stock markets saw modest growth in developed global economies in Q3.
- Rising rates were a global phenomenon during the quarter.
- Upcoming midterm elections add to investor uncertainty.
Glass half-full:
- The U.S. economy continues to grow, with unemployment remaining historically low.
- Higher yields have improved the income and forward-looking return potential for bonds.
- Stock market leadership has broadened across value stocks and international markets.
- AI-related investment remains a meaningful source of economic and corporate growth.
Glass half-empty:
- Inflation remains above the Fed’s target and could keep monetary policy restrictive.
- Treasury yields have risen sharply, creating renewed pressure on bond prices.
- Federal deficits, debt levels, and Treasury borrowing remain a source of uncertainty.
- AI spending is accelerating rapidly, raising questions about whether future returns will materialize.
