Q3 2026 Market Update

Strong Profits Meet Rising Rates

The third quarter was a tug-of-war between two forces. On one side, company profits saw strong earnings, while on the other, interest rates climbed sharply. Oil returned above $100 a barrel as the conflict involving Iran disrupted energy supplies, which kept inflation stubbornly high at 3.4%. In September, the Federal Reserve raised interest rates for the first time since 2023 to 3.75% – 4.00%, up .25% in response to inflation. Strong company profits helped large U.S. stocks move higher, with the S&P 500 gaining 2.3% during the quarter and 12.7% for the year. Meanwhile, rising interest rates won out in the bond market, where the Bloomberg U.S. Aggregate Bond Index fell 3.5%.

Stocks: Profits Carried the Market

Earnings for S&P 500 companies grew more than 30% compared to a year ago, powered by AI spending and higher energy prices, which let stocks rise even as borrowing got costlier. However, the gains were narrow. Energy stocks jumped 17.2% alongside rising oil prices, and technology stocks rose 7.2%, while rate-sensitive utilities ( -12.4%) and industrials (-9.7%) fell.

Smaller companies felt the impact of rising rates most, since they rely more on loans with adjustable rates. As a result, the Russell 2000 fell 7.2% after a 21.5% gain last quarter, even though earnings for smaller companies rose nearly 20%. In the short run, stock prices and business performance results do not always move together. Overseas markets were roughly flat as international stocks (MSCI ACWI ex-US) gained 0.5% while emerging markets slipped 0.4%, though emerging markets remain up 23.4% for the year.

Bonds: A Tough Quarter, a Better Starting Point

Bonds have a simple rule: when interest rates go up, the value of existing bonds goes down. During the quarter, the 10-year Treasury yield rose from about 4.2% at the start of the year to roughly 5.3%, its highest level since 2002. Inflation, the Federal Reserve’s interest rate hike, and heavy borrowing by both the government and AI-focused tech companies all pushed rates up. Longer-term bonds fell the most, and municipal bonds dropped 6.4%. High-yield bonds (-1.8%) performed better because they pay more income. The good news is that new bonds now pay the highest yields in more than two decades, and that income is a significant driver of bond returns over time.

What This Means for Geneva’s Target Date Funds

This quarter shows why Geneva’s Target Date Funds invest in a broad mix of assets rather than relying on a single type of investment. Longer-dated funds, invested mostly in stocks, benefited from the strength in large U.S. companies. Funds with target dates closer to retirement, which typically hold more bonds to help reduce risk and protect those close to retirement, felt more of the bond market’s decline, although gains in their stock holdings helped offset those losses. In every fund, broad diversification meant no single setback in performance decided the result. In fact, during periods of higher inflation, stocks and bonds tend to move in the same direction, which makes spreading money across many types of asset classes such as real estate, and international investments are even more important.

The Value of Staying Invested

Market leaders change quickly. Small companies led last quarter and trailed this one, and bonds went from gains to losses. Investors who sold during the April 2025 tariff sell-off missed a powerful recovery as small-company stocks have gained about 62% since that low, and the S&P 500 is up roughly 33% since the start of 2025. These shifts are difficult to predict, so the odds are against someone trying to time these swings correctly.

Geneva’s Target Date Funds are designed to remove that burden. Each participant is placed in a fund matched to their expected retirement year. The funds are professionally monitored, rebalanced, and screened by Geneva’s Biblical Values Investing Committee. The funds gradually become more conservative as retirement nears. Headlines will undoubtably keep coming but there is steadiness to faithful stewardship. Keep contributing, stay diversified, and let time work in your favor.

Explore Geneva’s Fund Performance Reports online at genevabenefits.org/my-benefits.