Spiking bond yields, midterms and earnings to test US stocks' typical fourth-quarter strength
SPY•US stocks enter a seasonally strong fourth quarter facing rising bond yields, midterm elections and the start of earnings season. The S&P 500 has gained 12% in 2026, while companies are expected to report third-quarter earnings growth of more than 30% year over year.
1. Seasonal gains face hurdles
Since 1945, the S&P 500 has averaged a 4.2% fourth-quarter gain and risen in 85% of fourth quarters, according to CFRA. In midterm years, the average fourth-quarter gain has been 6.4%; the S&P 500 has gained 12% so far in 2026, and its deepest decline this year has been 9%.
2. Yields and Fed in focus
The 10-year Treasury yield reached 5.34% on Thursday, its highest level in 24 years. Investors cited economic growth expectations, rising energy costs and corporate borrowing to fund AI expansions as factors behind higher yields. Federal Reserve minutes due Wednesday could offer clues about the rate outlook, including the possibility of another hike in October or December.
3. Earnings and AI spending
PepsiCo and Delta Air Lines are among the large companies reporting third-quarter results next week, ahead of broader reporting by major banks the following week. S&P 500 companies are expected to have increased earnings by more than 30% year over year. Investors are also watching for changes to AI hyperscalers' capital spending plans, which Nelson Yu of AllianceBernstein called a key focus for the earnings season.
