Newsletter - US Capital Markets 3Q26

US markets in 3Q26 remained supported by resilient economic activity and AI-led earnings growth, although investor sentiment became more selective amid persistent inflation and rising Treasury yields. Equity leadership shifted back towards mega-cap technology, with the Mag 7 outperforming the broader large-cap index on stronger earnings growth and valuation expansion, while the rest of the market saw multiple compression. Fund flows moderated, led by a decline in equity allocations, while fixed-income flows increased. Treasury yields moved higher and credit spreads widened, particularly in high-yield bonds, while the equity risk premium fell to near zero. Economic activity strengthened, supported by robust manufacturing and services growth, although labor-market conditions softened. Inflation remained above the Fed’s target, reinforcing expectations of a higher-for-longer rate environment. Meanwhile, sustained AI investment continued to support semiconductor demand, but rising financing costs and infrastructure constraints increased scrutiny of monetization and returns on capital.