Portfolio Manager Commentary

Q3 Market and Portfolio Review

The third quarter of 2026 proved far more challenging beneath the surface than headline index returns would suggest. Several of the conditions that fueled the broad-based rally of the second quarter reversed. The fragile U.S.-Iran ceasefire broke down in July, renewed hostilities and attacks on shipping again constrained energy flows through the Strait of Hormuz and other key corridors, and Brent crude climbed back above $100 per barrel before ending the quarter near $98. The resurgence in energy prices revived inflation concerns, pushed Treasury yields sharply higher, and ultimately forced the Federal Reserve’s hand. Against this backdrop, the S&P 500 still gained 2.3% for the quarter, but the equal-weighted S&P 500 declined 1.9%, underscoring how narrow market leadership became.

On the policy front, inflation proved stickier than hoped. August headline CPI rose 3.4% year-over-year, and in September the Fed raised its policy rate by 25 basis points, its first increase since 2023. The Fed’s updated projections raised its 2026 inflation forecast to 3.7% and pushed the expected return to its 2% target out to 2029. Longer-term rates moved even more dramatically, with the 10-year Treasury yield rising above 5% to its highest level since 2007. Economic data was mixed but generally resilient – manufacturing remained in expansion and consumer spending held up – although hiring slowed late in the quarter and housing activity weakened as mortgage rates reached their highest level since 2023.