Market Outlook: Q4 2026 At a glance

In late September, the S&P 500 traded near a record high of 7,700 in the same week the 10-year Treasury yield reached its highest level since 2007 (+5.00%). For most investors, this scenario is quite paradoxical: the cost of borrowing is rising in tandem with rosy equity markets.

Stock market performance has been encouraging so far year-to-date, albeit it hasn’t been a straight line. For the most part, both stock prices and yields are being driven by the same thing. Firstly, the AI and infrastructure buildout are producing the earnings growth that has supported today’s valuation, while also largely impacting lending markets. Secondarily, the war with Iran has added an energy premium on top while also being a large fiscal expense for the United States. And together, these themes are keeping inflation sticky and yields elevated. Not to mention making the Feds’ job of balancing its dual mandate (price stability and maximum employment) harder than they would like to admit (probably). 

Four things on our minds:

Who pays for the AI buildout?

What’s happening. Adoption keeps accelerating. Consumer facing apps, like Muse – from Meta – has reportedly reached 5 million downloads faster than ChatGPT and other AI-app peers. Meanwhile, improved model releases, safety news, and IPO expectations keep moving AI stocks sharply on headlines alone.

Why it matters. More and more of the buildout is being paid for with debt, and debt markets are usually where stress shows first. The funding requirement for AI is huge, hence why the largest most profitable companies in the world are leading the charge. However, these once capital-light businesses are now shifting towards capital-intensive businesses. According to J.P. Morgan Asset Management, hyperscalers’ capital expenditures are expected to exceed the cash generated by their operations in the near term — in short, these technology giants are expected to spend more on the buildout than their businesses generate in cash, creating a need for external funding. The question is, will these companies continue spending more than their businesses generate in cash into 2027 and beyond? And how soon will these investments generate enough cash to close that gap?

Can stocks keep rising with the 10-year yield this high?

What’s happening. The 10-year Treasury yield reached 5.00% and the 30-year climbed to 5.38% on September 16^th – the day the Federal Reserve raised its benchmark rate 0.25%. The speed at which this happened is almost more staggering than the level itself. In the month of September alone, the 10-year Treasury rose 53 bps (or 0.53%). Over the same stretch, the S&P 500 remained barely positive, but currently sits only a smidge away from its all-time high.

Why it matters. Higher yields raise the bar for stocks. When a bond pays north of 5%, equities have to offer more to justify the risk for owning them. Part of the rise in yields is due to the Fed, but the market got there first. Before the September hike, the 6-month Treasury bill was already yielding about 25 basis points above the fed funds rate. So, the hike mostly confirmed what markets had already priced (the bigger risk was the Fed potentially moving against what the market was already telling investors). That’s partly why stocks absorbed the hike so calmly. The bigger driver may be global: Long-term yields are rising in Europe, Japan, and the UK as well, which points to government borrowing and inflation risk more than U.S. policy. The Fed is a passenger here, not the driver of yields.

Is inflation coming back?

What’s happening. Inflation has risen again in 2026, driven primarily by rising energy prices, rather than a broad-based return to Covid-style inflation. Items such as gasoline and diesel have made headlines recently as a resolution to the Middle East supply disruptions continue to fizzle. 

Why it matters. Molecules can’t be printed. A response from the Fed to address inflation at the pump doesn’t work – the energy driven inflation is a supply problem. During Covid, the Fed and U.S. government were able to take drastic action to assist Americans and business to absorb the cost of higher prices (but at a time when travelling was at a standstill). In August alone, gasoline prices rose 27% year-over-year, while airline fares rose 23.4%. Diesel made headlines because it runs through freight, and freight shows up in the price of nearly every physical good a few months later. Energy and food alone are what the Fed usually looks past, so a real second wave (outside of higher energy and food prices) would need core prices, wages, or inflation expectations to follow.

What is crypto and gold telling us?

What’s happening. Bitcoin has risen roughly 40% over the past three-months, continuing to climb even after the Fed’s hike and the jump in long-term yields. Conversely, Gold has had a relatively muted response to yields rising and continued global uncertainty, despite benefitting from being a safe-haven asset in 2024 and 2025.

Why it matters. Most investors consider crypto, and specifically Bitcoin, a risk asset, which has traditionally had similar correlation to an index like the NASDAQ. The view coming out of Covid (when rates were low) is that crypto trades on liquidity: it rallies when money is cheap and struggles when it isn’t. This quarter has been different, with a Fed unlikely to cut anytime soon, it’s unlikely crypto is moving ahead of any future cheaper liquidity. What we’re questioning is if the forces pushing yields up, heavy government borrowing, and inflation worries, are the same ones driving demand for scarce assets like gold and metals. We think it’s wise to give both asset classes, gold and crypto, more consideration during all this geopolitical uncertainty – especially to provide diversification to portfolios.

What would change our view

Topic	More constructive if…	More cautious if…
AI funding	Cash flow starts catching up to capex and credit spreads stay calm	Borrowing costs rise for AI-related companies, or financing stress spreads across several of them
Stocks vs. yields	Earnings estimates keep rising through third-quarter reporting and the 10-year stabilizes	The 10-year keeps climbing while earnings estimates stall
Inflation	Energy stays high without spreading into core prices, wages, or inflation expectations	Diesel and freight costs start showing up in core inflation
Crypto and gold	Bitcoin keeps moving with tech, which points to healthy risk appetite	Bitcoin and gold rise together while stocks lag, which points to worry about government debt

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