In our quarterly Economic & Market Update Newsletter, we separate the relevant from the noise, to bring you timely content that helps you on the path to and through retirement!
True North Quarterly Commentary | October 2026
The third quarter of 2026 was defined by a sharp rise in bond yields, the Federal Reserve’s first interest rate increase in more than three years, persistent inflation, and an increasingly concentrated stock market rally driven by artificial intelligence.
Stock Market Update
On the surface, the stock market still looks healthy. The S&P 500 finished September up 12.7% for the year, the economy continues to grow, and corporate earnings are justifying higher stock prices. But signs of stress are emerging. While the S&P 500 remains near record highs, roughly 44% of companies in the index were trading at least 20% below their 52-week highs at the end of September – nearly half of all companies in the S&P 500 are now trading in bear market territory!
AI Impact
Artificial intelligence explains much of the disconnect. A small group of mega-cap technology companies has driven an outsized share of this year’s gains, while many other areas of the market, including small- and mid-cap stocks, real estate, utilities and other interest-rate-sensitive sectors, have struggled. There is little doubt that AI will transform the economy and create meaningful productivity gains. But a transformative technology is not the same thing as a transformative investment. The enormous amount of money being spent on AI must eventually translate into revenue and profitability for these companies and justify the investment dollars funding AI infrastructure spending.
Economy Update
More broadly in the economy, we see continued growth despite weak consumer confidence. Consumers are still spending, business investment remains strong, and corporate earnings have exceeded expectations. Much of the continued spending can be explained by the “wealth effect” – Americans with assets (like homes and stocks) feel confident and continue to spend because their wealth continues to rise. On the other end of the K-shaped economy, inflation remains sticky and higher borrowing costs are creating pressure for many households and businesses.
Looking Ahead
A strong case could be made by both optimists and pessimists for where the market is headed from here. We could see a rally into year-end if bond yields stabilize, the conflict with Iran ends, oil prices decline, corporate earnings remain strong, and election-related uncertainty fades after the November mid-terms. On the other hand, if bond yields remain elevated, or confidence in the AI investment boom weakens, the pressure already building beneath the surface could lead to steeper declines in both stock and bond markets.
Here’s how we’re managing client portfolios in this environment:
- Shortening bond maturities to take advantage of higher yields while reducing interest-rate risk and keeping portfolios stable.
- Rebalancing stock portfolios and trimming outsized technology positions back toward target allocations.
- Avoiding the temptation to chase tech returns. Maintaining diversification and focusing on quality should contribute to long-term growth while protecting portfolios if market leadership reverses or there is a broader decline.
Bottom Line:
The Bottom Line: Markets remain resilient, but headline returns are masking a significant divergence in stocks. While a resolution to macro uncertainties could lead to a rally into year-end, much of that is dependent upon strong earnings and continued success of AI-fueled growth.
