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Midterm elections, capital markets, and the economy
October 1, 2026
Market News
Market analysis
September 8, 2026
Solid economic growth and corporate profits support markets, while rising energy prices, higher long-term interest rates and escalating Middle East tensions reinforce the value of diversification.
Number of the week:
53.2%
Earnings growth for S&P 500 companies in the second quarter compared to a year earlier.
Term of the week:
Earnings
A company’s after-tax profits in a given quarter or fiscal year. Earnings are a key figure investors may use to determine a stock’s value.
Quote of the week:
Second quarter corporate results exceeded expectations. With 99% of S&P 500 companies reporting, revenue grew 15.6% over the past year, compared with an expected 11.9%, while earnings rose 53.2%, more than twice the initial forecast. Analysts now estimate S&P 500 earnings growth of 32% in 2026 and 15% in 2027, providing primary market support. Stock prices remain high relative to expected profits but below earlier peak valuations.
― Terry Sandven, Portfolio Manager, Chief Equity Strategist, U.S. Bank
U.S. Bank Asset Management Group
Daniel Farley, CFA
Chief Investment Officer
Kaush Amin, CFA
Head of Private Market Investing
Chad Burlingame, CFA, CAIA
Head of Impact Investments
Thomas Hainlin, CFA
National Investment Strategist
Robert Haworth, CFA
Senior Investment Strategy Director
William Merz, CFA
Head of Capital Markets Research
William Northey, CFA
Senior Investment Director
Terry Sandven
Chief Equity Strategist
Global economy
Quick take: U.S. hiring and business activity strengthened in August, while renewed Middle East fighting increased risks to energy supplies, inflation and the global growth outlook.
- Escalating Middle East conflict increased risks to energy shipments. U.S. forces struck three Iranian oil carriers on Saturday after Iran launched missiles toward two U.S. Navy ships, which reported no injuries. Iran also said it targeted commercial vessels in the Strait of Hormuz and on Sunday claimed an attack on an unmanned U.S. vessel, which the U.S. denied. Iran later announced an exclusion zone near the strait. U.S. officials estimate that oil flows through the waterway have recovered to about two-thirds of pre-conflict levels, although private shipping data are still uncertain. Further disruptions could lift fuel costs and add pressure to global inflation and growth.
- August employment data show a labor market that continues to support household spending. Employers added 162,000 jobs, well above forecasts and sharply higher than July. Private hiring also exceeded expectations, the unemployment rate held steady and labor force participation rose for the first time in nearly a year. Other measures pointed to limited hiring but few layoffs: Job openings increased, the layoff rate reached its lowest level since January and weekly unemployment claims remained subdued near 206,000. Employers still appear to need workers, while steady income growth gives many households added capacity to manage higher fuel prices and borrowing costs.
- Business surveys indicate continued growth alongside persistent price pressure. The Institute for Supply Management reported faster U.S. services activity in August, with new orders and business activity strengthening. Factory orders rose 0.9%, exceeding forecasts, and the Federal Reserve’s (Fed) nationwide business survey described modest growth across most regions. Companies continue to report higher material and tariff-related costs. Overseas surveys indicate expansion across the eurozone, United Kingdom and Japan, with Japanese manufacturing showing particular strength. Euro-area inflation rose to 3.3%, although inflation excluding food and energy eased. Steady growth paired with elevated prices could keep central banks cautious about lowering interest rates.
Equity markets
Quick take: Broad market gains and stronger profit forecasts support stocks, but higher interest rates, elevated valuations and geopolitical risks increase the potential for short-term swings.
- Stock gains remain broad across regions and industries. Major global stock indexes have advanced between 12.4% and 24.9% this year, led by emerging markets. Ten of the 11 S&P 500 sectors are positive, and six have posted double-digit gains. Broad participation shows that economic growth and corporate results extend beyond large technology companies. Markets were mixed last week as investors weighed higher interest rate expectations and renewed Middle East conflict. Broader leadership strengthens the market foundation but cannot prevent temporary declines.
- Higher interest rates raise the standard for additional stock gains. Stronger-than-expected August job growth increased expectations for a Federal Reserve rate increase in September. A higher 10-year Treasury yield can make future profits less valuable in today’s dollars, particularly when expected earnings sit farther in the future. Profit growth can offset part of that pressure. However, persistent inflation or another increase in energy prices could keep borrowing costs elevated and limit how much investors will pay for expected profits.
- Second quarter corporate results exceeded expectations. With 99% of S&P 500 companies reporting, revenue grew 15.6% over the past year, compared with an expected 11.9%, while earnings rose 53.2%, more than twice the initial forecast. Analysts now estimate S&P 500 earnings growth of 32% in 2026 and 15% in 2027, providing primary market support. Stock prices remain high relative to expected profits but below earlier peak valuations. Adobe and Oracle report on September 10, followed later this month by Darden Restaurants, Costco and Micron.
- The outlook remains constructive but calls for selectivity. Artificial intelligence investment supports demand for chips, software, data centers and power, while investors increasingly want evidence that this spending can produce lasting revenue and profits. Consumer companies report spending growth, although results vary by household income. Financial companies generally describe borrowers as healthy, and selected health care businesses show improving trends. This uneven backdrop favors companies with durable demand, sound finances and a demonstrated ability to protect profits.
Bond markets
Quick take: Government bond rates reached multi-year highs as investors assessed persistent inflation, resilient growth, heavy borrowing and uncertainty over the Federal Reserve’s next interest rate decision.
- Long-term government bond rates rose across major markets last week. Rates in Japan, the United Kingdom and Germany reached their highest levels since 1996, 2008 and 2001, respectively. The 30-year U.S. Treasury yield remained above 5% for its longest stretch since 2006. Investors continue to adjust to an economy that is growing while inflation remains above central bank goals. Large government budget deficits and heavy corporate borrowing have also increased the volume of bonds competing for buyers. Higher rates can improve future income for investors who purchase bonds, but they also reduce the current value of bonds already held in portfolios.
- Federal Reserve officials continue to debate whether another rate increase is needed to slow inflation. Fed Governor Michael Barr said policymakers should remain prepared to act if inflation does not cool. New York Federal Reserve President John Williams pointed to signs of easing inflation and said the evidence does not clearly require an increase. Governor Christopher Waller also noted recent progress but emphasized the importance of the next consumer inflation report. Market prices imply a 60% probability that the Fed will raise its target rate by 0.25% at its September 15-16 meeting. This week’s August inflation data could quickly shift those expectations.
- Prices for bonds with longer repayment periods declined as rates rose. Higher-quality corporate bonds fell 0.4% last week, while municipal bonds lost more than 0.8%. Short-term Treasury prices were roughly unchanged, but longer-term Treasuries declined about 0.4%. Investments with income payments that adjust with short-term interest rates gained about 0.4%. Highly rated securities backed by diversified business loans and insurance-related bonds also posted small gains. The results show how maturity length and payment structure influence bond performance when rates change. A diversified mix of short-, intermediate- and long-term bonds can balance current income, price stability and the opportunity to benefit if rates eventually decline.
Real assets
Quick take: Energy drove broad commodity gains last week as Middle East conflict disrupted shipping, while publicly traded real estate and precious metals declined and infrastructure investments posted modest gains.
- Publicly traded real estate declined, but performance varied widely by property type. The broad U.S. real estate investment trust market fell about 1.2% last week but remained roughly 14% higher for the year. Healthcare properties gained 1.1% and continued to lead the category over the past 12 months, while telecommunication towers advanced 0.9%. Self-storage, office, residential and industrial properties each declined between 1% and 2%. Data centers slipped 0.1% for the week but remained more than 30% higher this year, with artificial intelligence development increasing demand for computing capacity. Higher borrowing costs create near-term pressure, while durable rental demand and disciplined new construction support selected areas.
- Infrastructure investments posted a modest gain last week. Global infrastructure rose 0.2% and North American energy infrastructure, including pipelines and processing facilities, gained 0.6% and remained more than 30% higher for the year. Utilities advanced 0.1% while global industrial companies fell about 1.2%. Pipelines can benefit from steady transportation demand, utilities often provide regular income and industrial companies participate more directly in economic growth. Combining these business types can broaden portfolio income sources and diversify their economic drivers. Higher interest rates and slower economic activity can still affect each segment differently, reinforcing the value of selectivity.
- Energy prices lifted the broad commodity market. A diversified commodity index rose about 2% as U.S. crude oil jumped 9.5% and Brent crude gained 7.5% after the United States and Iran resumed military strikes. Diesel reached a record price as Strait of Hormuz shipping disruptions combined with limited refining capacity linked to the Russia-Ukraine war. Natural gas rose 1.7% while gold declined about 1.2%, silver fell 1.4% and copper gained 0.3%. Commodities can help portfolios during energy-driven inflation, but prices can shift quickly as military activity, shipping conditions, inventories and global demand change.
This information represents the opinion of U.S. Bank. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.
Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.
Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The Institute of Supply Management Manufacturing Index, also called the Purchasing Manager’s Index, measures manufacturing activity based on a monthly survey, conducted by the Institute for Supply Management, of purchasing managers at more than 300 manufacturing firms.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities is subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer’s ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).
©2026 U.S. Bank
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