Oil hovers near $100. Middle East conflict marches on. Trade wars are back in the headlines. Midterm elections are coming up in six weeks in the US. The Federal Reserve rose interest rates last week (and may not be done with their hikes). Longer-term interest rates continue to rise (with the 10 year rising, sitting at over 5% today). More stocks are making 52 weeks lows than are making 52 week highs… And yet equity market indexes are reaching or nearing all-time highs (depending on the index of choice). Wait, what? That last sentence seems like it can’t possibly be true given the preceding ones and yet it is. As an investor, you may be thinking “help it make sense!” Let’s take a look

Concerns are Real

It’s important to acknowledge that the items listed above are all valid concerns. Markets are not blind to them but rather, they have digested that data and have priced it into current levels. But as I always do my best to remind myself (and you), markets don’t tend to move off “good versus bad” – they move off of “better versus worse.”

For instance, markets were fully anticipating a rate hike by the Fed last week. It had been well communicated by the Fed (not in so many words but it was obvious nonetheless) and the inflation data supported it. Markets got that hike. Had the hike been larger or had the hike not happened, that would be moved markets. Markets are now adjusted to the impacts of the middle east conflict. Current levels price in some sort of ongoing nature to that conflict. Should things resolve sooner than anticipated (ie: “better”), markets will move higher and the inverse is also likely to occur if the conflict ramps up/drags on.

Earnings Dominate the Trendline

While all the concerns are valid, the “good news” is more than offsetting the challenges. Equity markets are being propelled largely by earnings growth (which is focused in certain sectors like technology which dominate the US equity indexes). As a reminder, a price of a stock is determined by its earnings * a multiple of those earnings (driven by sentiment). While multiples have held relatively steady this year, earnings have rocketed higher with year over growth likely to reach over 30%. This is incredible growth, due in large part to the AI build out and the resulting earnings growth in the technology and semi conductor areas (which make up over 2/3 of US markets). Even with multiples staying level, higher earnings is going to drive up equity prices and the corresponding indexes.

Rates Rising for Good (?) Reasons

Equity and fixed income investors alike don’t love rising rates as they tend to cause the market values of both asset classes to decline and raise concerns over volatility and uncertainty. In the past few days of trading as rates have risen (again) to multi year highs, equity markets have come off their all-time highs.

While the media will spend hours trying to explain the rise in rates, such short-term diagnostics are impossible. As discussed in past writings, rate changes are the result on a myriad of factors including higher growth expectations, higher inflation expectations, supply/demand forces, and rising default risk (while US debt is rising, we’re not at this stage).

It’s possible that today’s rate increases are for a “good” reason – namely stronger than anticipated economic growth in the US (recent GDP estimates top 6% annually, largely due to AI build out). If that were in fact the main reason – and if inflation dips lower in the future, real rates are at a very strong level for investors and savers alike. Higher rates put pressure on asset valuations but they do encourage investment in an economy, strengthen the USD, and help savers earn more income.

Path Forward

With just over three months to go in 2026, investors are likely simultaneously confused at the strength in equities thus far and worried about how the year might finish. Throw in a midterm election and things are interesting to say the least!

As always, no one knows where things will go from here and it’s a fool’s errand to invest based on any prediction. However, it is a worthwhile time to revisit your portfolio. Here are a few suggested actions:

*Revisit your return goals and the allocation needed to achieve that return. The playing field has changed. With starting yields over 4% in most fixed income securities, that asset class can play a key role in reaching your overall return with lower volatility.

*Check in on your target versus actual allocation – with recent equity strength and slight weakness in fixed income (due to rising rates), a small rebalance from equity to fixed income may be in order (again, this will depend on your portfolio so complete your own independent analysis).

*Start your harvesting – with the tax year coming to a conclusion in ~3 months, harvesting losses in taxable accounts can also make sense.

*Save and deploy with precision – if you are still in an accumulation/savings phase, continue to invest per your plan, which is allowing you to invest at various market entry points. Pay attention to where you are directing funds and what the starting points are for those assets

*Stay aware – and calm – lastly, “something” is bound to happen as 2026 comes to a close (after all, it always does in this wild world). It might be a positive surprise or it could be another challenge to endure. As you well know, the key is to stay the course and keep your cool!

Onward we go,