The S&P 500 enters the fourth quarter up nearly 13% for 2026, a period that has historically delivered strong gains. But spiking bond yields, the November midterm elections, and a demanding earnings season could test that seasonal strength this year.
The S&P 500 has gained nearly 13% in 2026 and sits about 1% below its mid-August record high as the fourth quarter begins. That is a solid setup, but rising bond yields, the November 3 midterm elections, and a heavy earnings slate could challenge the market's usual late-year strength.
Fourth quarters usually bring gains
Since 1945, the index has averaged a 4.2% gain in the fourth quarter, rising 85% of the time, according to research firm CFRA. Fourth quarters of midterm years have generally been even stronger, averaging a 6.4% gain, because falling election uncertainty tends to support stocks, CFRA chief investment strategist Sam Stovall said.
Midterm years overall have historically been rougher for stocks, with the S&P 500 averaging a 15% dip in those years. Yet the deepest pullback so far in 2026 has only reached 9%, according to Tracie McMillion, head of global asset allocation strategy at the Wells Fargo Investment Institute.
Spiking yields put pressure on stocks
The benchmark 10-year Treasury yield hit 5.34% on Thursday, its highest level in 24 years, as strong growth expectations, rising energy costs, and heavy corporate debt issuance for AI expansion pushed interest rate costs higher. Higher yields can create more competition for stocks and translate into more expensive borrowing costs throughout the economy, investors said.
According to Reuters: "The interest rate story is the biggest headwind," said Chuck Carlson, chief executive officer at Horizon Investment Services. The Federal Reserve raised rates last month for the first time in three years to cool above-target inflation, and minutes from that meeting are due Wednesday.
Earnings season puts AI spending in the spotlight
PepsiCo and Delta Air Lines are among a handful of large companies set to report third-quarter results next week, ahead of big banks the following week. S&P 500 companies are expected to post more than 30% earnings growth in the third quarter from a year earlier, according to LSEG IBES data.
Much of that growth is tied to spending by AI hyperscalers building data-center infrastructure, said Nelson Yu, head of equities at AllianceBernstein. Yu said the key figure to watch this earnings season is capital-spending revisions from those hyperscalers, since that number sets the pace for the rest of the chain.
Source: Investing.com
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