HORAN Wealth’s fall 2026 investor letter says a small group of mega-cap technology stocks again drove much of the S&P 500’s third-quarter return, even as the equal-weighted index weakened in September. The U.S. economy and corporate earnings remained resilient, but Federal Reserve rate hikes, rising Treasury yields and inflation above the Fed’s target shaped conditions for both stocks and bonds.
Four tech stocks accounted for more than the S&P 500’s gain
Citing figures from Citadel Securities, HORAN Wealth said Microsoft, Nvidia, Apple and Meta Platforms added about 300 points to the S&P 500 in the third quarter—more than twice the index’s total gain. The rest of the index’s constituents collectively subtracted about 150 points. The S&P 500 returned 2.30% for the quarter, with technology stocks contributing 2.72 percentage points. The seven weakest sectors together detracted 1.86 percentage points.
The index’s weightings also illustrate the concentration. For every dollar invested in the S&P 500, about 41 cents is allocated to its 10 largest companies, 35 cents to the “Magnificent Seven” and 19 cents to semiconductor stocks. Nvidia alone accounts for about 8 cents—more than the combined weight of the index’s 256 smallest companies.
Market breadth shifted in September. After the equal-weighted S&P 500 had at one point outperformed its market-cap-weighted counterpart, the market-cap-weighted index fell 0.35% that month, compared with a 4.81% decline for the equal-weighted version. The latter was consequently behind for the year to date. The S&P 500 remained less than 2% below its high, but 22% of its constituents were more than 20% below their individual peaks and 65% were down more than 10%. Mega-cap technology gains masked declines in many stocks, with the pullback showing up more in uneven performance over time than in a sharp fall in the headline index.
Midterm elections and the presidential cycle
HORAN Wealth said markets tend to absorb policy uncertainty around presidential elections over time, while companies adjust their operations to election outcomes. Historically, the president’s party usually loses seats in the House of Representatives during midterm elections. Since 1946, the party in power has gained seats only in 1998 and 2002, and has lost an average of 22 seats.
Historical returns across the four-year presidential cycle show that the fourth quarter of the second year and the first and second quarters of the third year have typically been the cycle’s three strongest quarters. The pattern is a historical observation, not a guarantee that each cycle will follow the same course.
Earnings hold up as services and manufacturing expand
Despite elevated energy prices, tensions in the Middle East and the effect of Fed rate hikes on investor sentiment, the U.S. economy remained resilient in the third quarter and corporate earnings exceeded expectations. LSEG I/B/E/S data show that S&P 500 companies’ final second-quarter earnings rose 53.7% year over year. With third-quarter reporting just beginning, analysts expected earnings growth of 30.6% year over year.
Real U.S. GDP grew at a 2.2% annualized rate in the second quarter. Consumer spending rose 3.8%, while business investment increased at a 9% annualized rate. The rise in business investment was linked to activity including artificial intelligence data-center projects. The Atlanta Fed’s GDPNow model estimated third-quarter growth at 3.7%.
The Institute for Supply Management’s manufacturing purchasing managers’ index edged down to 54.5 in September from 54.6 in August, but remained in expansion territory for a ninth straight month. That marked an improvement from the contraction seen for much of 2025. The services index rose to 55.4 in August from 54.1 in July, its strongest reading in six months. PMI readings above 50 generally indicate expansion. Businesses also reported that fuel costs had pushed price pressures to a four-year high.
Fed raises rates as 10-year Treasury yield reaches a 20-year high
At its September meeting, the Federal Reserve raised the federal funds target range by 25 basis points to 3.75%–4.00%. It was the first rate increase since 2023 and followed Kevin Warsh’s appointment as Fed chair. Warsh described the move as a reduction in monetary accommodation rather than a tightening of policy. The median rate projections from Fed officials indicated that the policy rate would remain around 4.1% in both 2026 and 2027.
Market rates have risen more sharply this year. The 10-year U.S. Treasury yield climbed from 3.97% in February to 5.28% in September, its highest level in more than 20 years. Bond prices typically move inversely to yields, so rising rates weighed on bond returns. Through the end of September, the Bloomberg U.S. Aggregate Bond Index was down 3.3% for the year, including a 2.6% decline in September—its sixth-worst September in 30 years. By comparison, the 10-year Treasury delivered a total return of negative 16.9% during the rate increases of 2022.
Inflation remained above the Fed’s 2% target. The latest consumer price index reading was 3.35%, while core CPI, excluding food and energy, was 2.45%. The personal consumption expenditures price index stood at 3.45%. However, only 12 of the 402 PCE categories had year-over-year price increases above 2%. Energy prices rose 16.8% from a year earlier, the largest increase among the categories.
Data-center spending and international markets
HORAN Wealth had previously highlighted technology companies’ capital spending and data-center expansion. The letter said some data-center construction projects had faced opposition from local communities, but the firm believed those issues could be resolved. It described infrastructure investment as a key driver of AI development.
Emerging markets outperformed the U.S. and developed markets, with technology companies contributing substantially to growth. HORAN Wealth did not provide specific index returns in the letter, but identified emerging markets as a relatively strong region among international markets.
2026 earnings forecasts and key market variables
LSEG I/B/E/S forecast 35.8% earnings growth for S&P 500 companies in 2026. At the time the letter was written, the index’s year-to-date return stood at 12.8%. HORAN Wealth said earnings growth could support share prices over the next 12 to 18 months, while slowing growth could act as a headwind. Further declines in inflation could allow interest rates to fall or remain stable; if inflation stays elevated, rates and bond-market performance will remain important considerations for investors.