Spiking bond yields, midterms and earnings to test US stocks' typical fourth-quarter strength
SPY•US stocks enter a historically strong fourth quarter facing rising bond yields, midterm elections and the start of earnings season. The S&P 500 has gained nearly 13% in 2026, while third-quarter earnings are expected to rise more than 30% year over year.
1. Seasonal strength faces risks
Since 1945, the S&P 500 has averaged a 4.2% fourth-quarter gain, rising in 85% of those quarters, CFRA research shows. Fourth quarters in midterm years have averaged a 6.4% gain, while midterm years overall have historically seen an average 15% decline in the index. Tracie McMillion of Wells Fargo Investment Institute said the firm is on “high alert” for a pullback before the November 3 elections.
2. Yields and Fed outlook
The 10-year Treasury yield reached 5.34% on Thursday, its highest level in 24 years. Investors said higher yields can compete with stocks for investment and pressure valuations, while increasing borrowing costs. Minutes from the Federal Reserve’s latest meeting are due Wednesday and could offer clues on its rate outlook; markets were betting the Fed would likely hold off on a second consecutive hike later in the month.
3. Earnings and AI spending
PepsiCo and Delta Air Lines are among the companies reporting third-quarter results next week, ahead of broader reporting by major banks the following week. S&P 500 companies are expected to report earnings growth of more than 30% from a year earlier. Investors will watch for changes in AI hyperscalers’ capital-spending plans, which Nelson Yu of AllianceBernstein called the number one thing to watch this earnings season.
