Client Newsletter Q3 2026
Dear Friends,
The third quarter was positive and looked relatively calm on the surface, but like the duck on a pond, underneath the headline numbers hid a more chaotic market. The S&P 500 gained about 2% in the third quarter, while small-company stocks fell about 7%. Had the S&P or Dow lost that much, it would have dominated the headlines.
Large technology companies, the ones you’ve been hearing about all year, helped carry the S&P. Although the index includes 500 companies, the biggest 5 have the most influence accounting for 30% of the movement. Give each company the same weight, and the quarter’s gain becomes a loss of about 2%.
Energy led the market as oil prices rose amid intensifying conflict with Iran. We began adding exposure to the sector this past year. With higher oil prices, energy companies’ profits were pushed higher while raising costs for all the other businesses that depend on their products from shipping to plastics.
The biggest news of the quarter came from The Fed when it raised interest rates in September and signaled another increase this year, making borrowing more expensive. Companies refinancing debt at higher rates will face larger interest bills, and consumers' credit card minimums are going to increase as well. Even businesses that are doing well can have less available for dividends when more of their earnings go toward interest.
The encouraging part: earnings expectations rose faster than stock prices. Even as the market advanced, investors were paying less for each dollar of expected profit.
Looking ahead, higher borrowing costs will continue to work their way through businesses and household budgets. We’re watching how well corporate profits hold up as those costs take effect. Year to date, exposure to large technology companies and energy has helped overall portfolio performance.
In the short term, stocks can swing wildly, but if we still like a company’s long-term prospects, its finances remain solid and it pays dividends along the way, we don’t automatically sell because the position has grown beyond a model allocation. Instead, we decide account by account. Before trimming, we consider your overall exposure, whether the stock’s price remains reasonable, the tax consequences for you and what we would buy instead.
Thank you for your continued trust. Please let us know if anything has changed in your financial situation.
Investment Advisory services offered through Moonstone Asset Management, Inc. a registered investment adviser
Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.
This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.