October 21, 2026

U.S. Energy stocks soar and investors sell off U.S. Treasury bonds

Financial Markets

  • The S&P 500 Index returned 2.30% for the quarter and 12.75% year-to-date, finishing near record highs. Energy stocks led the way by a wide margin, returning 40% in the third quarter as crude oil prices peaked at over $110/barrel in September. Technology stocks also were up 7% as the AI spending boom continued.
  • U.S. small cap stocks fell -7.23% during the quarter, with small cap technology stocks down -10.00% as small software companies faced investors’ concerns that AI will make their applications obsolete.
  • Taiwan continued to outperform, but emerging and international developed markets each earned less than 1% for the quarter. South Korea’s export growth slowed, and its stock market fell after a red-hot first half of the year.
  • Investors sold off U.S. Treasury bonds during the quarter, pushing the 10-year U.S. Treasury yield above 5%. It has been nineteen years since the U.S. 10-year rate has remained above 5% for a sustained period.

Overview of the Economy

  • U.S. gross domestic product (GDP) grew at approximately 3.6% annualized in the third quarter. Corporate earnings topped expectations as data center buildouts created demand for grid wiring, power transmission, and cooling capacity. Investors rotated capital from chip designers to hardware companies that provide memory devices, server assembly, and electrical hardware.
  • U>S. unemployment held steady at 4.2%, remaining within a narrow range in 2026. U.S. employers added fewer jobs than expected during the third quarter, but labor force participation rose and the U.S. health care and manufacturing sectors added jobs.

Notable Events

  • In September, the Federal Reserve under new Chairman Kevin Warsh raised their policy rate a quarter of a percent to 3.75% – 4.00%. The committee had left the rate unchanged in Warsh’s first two meetings as Chairman.