As of Sept. 22, 2026, Andrew Hill Investment Advisors (AHIA) said markets in the third quarter were caught between rising oil prices, persistent inflation and higher interest rates. WTI crude had climbed 36.05% from July 1 to $99.25 a barrel, while the federal funds rate rose to 3.75%-4%, marking its first increase in more than three years. Stocks still advanced on stronger corporate earnings and heavy investment in artificial intelligence, but bonds, housing finance and household costs came under pressure.
Stocks, bonds and commodities move in different directions
Through Sept. 22, the S&P 500 Total Return Index rose from 7,499.36 on July 1 to 7,764.64, a quarterly gain of 3.54%. The Bloomberg U.S. Aggregate Bond Total Return Index fell from 98.98 to 96.21, down 2.80% for the quarter. Gold gained 8.14% to $398.38.
The shift in interest rates was more pronounced. The two-year U.S. Treasury yield rose from 4.20% to 4.75%, while the 10-year yield increased from 4.47% to 4.97%. The average rate on a 30-year fixed-rate mortgage moved from 6.49% to 6.95%.
Energy costs also rose sharply. WTI crude increased from $72.95 to $99.25 a barrel. The average U.S. gasoline price rose from $3.96 to $4.60 a gallon, while diesel climbed from $4.67 to $6.52. The increases were 16.16% and 39.67%, respectively.
AHIA said the sharp rise in oil prices in July left the S&P 500 broadly unchanged. Stronger-than-expected corporate earnings helped the index gain about 1.2% in August, but further increases in interest rates limited performance in September. Earnings growth offset some of the broader economic pressure, although results continued to vary widely across sectors.
Hiring slows while inflation remains above target
The U.S. labor market is still expanding, but monthly job creation has been easing. The economy added 162,000 jobs in August, while the unemployment rate remained slightly above 4%. AHIA said employment conditions directly affect consumer spending. The retirement of the baby-boom generation, demographic shifts and slower immigration are making it harder for new workers to fully replace those leaving the workforce.
Average consumer inflation over the past three months was 3.4%, down from a May peak of 4.3% but still well above the Federal Reserve's 2% target. Producer inflation averaged 4.8% this year, suggesting that higher business input costs could continue to pass through to prices for goods and services.
The Consumer Price Index rose at an annualized rate of 3.8% in the second quarter, while prices for some goods, including beef, increased by double digits. Diesel prices in some markets have reached $6 a gallon, about 45% above a year earlier.
AHIA pointed to a marina in Chokoloskee, Florida, as a more tangible example of changing household costs: the fee to launch a boat rose from $20 to $35 a day over several years. Such everyday expenses can shape consumer perceptions more directly than headline inflation data. If the labor market remains stable, the Federal Reserve still has room to raise rates further or keep them elevated for longer.
Higher Treasury yields weigh on long-duration bonds
The defining move in the bond market was the continued rise in yields. The 10-year Treasury yield reached 5% in late September, while the 30-year yield climbed to its highest level since 2004. Rising yields push down the prices of existing bonds, helping drive the Bloomberg U.S. Aggregate Bond Index to a 2.8% quarterly loss and weighing on fixed-income performance for the year.
AHIA said a 10-year yield near 5% could become a reference point for investors considering a larger allocation to bonds. Investors are reassessing the trade-off between interest-rate risk and income. In some client accounts, AHIA increased holdings of corporate bonds yielding close to 6%.
Although higher rates hurt the performance of some longer-term bonds, several clients still generated modest gains from other fixed-income holdings. Pioneer Cat Bond Fund was the largest positive contributor.
AI and software stocks support equity portfolios
Corporate earnings continued to exceed analysts' expectations. Revenue at technology companies rose 37%, while energy companies recorded 26% growth. Revenue in communications, financials, industrials and health care increased by roughly 10% to 15%. Utilities and consumer discretionary stocks lagged, with revenue growth of 4.8% in both sectors.
Artificial intelligence-related shares were the clearest source of divergence during the quarter. An equal-weighted basket of AI stocks gained 13.0%, while a basket of traditional-economy stocks fell 8.3%, a gap of more than 21 percentage points. Software, AI hardware and several strategic investments performed well in client portfolios.
Among software holdings, Microsoft gained 30%, Blackbaud rose 50% and DocuSign advanced 58%. In AI hardware, Nvidia rose 6% while again reporting strong results, and Arista Networks climbed 16%.
Other strong performers included Automatic Data Processing, which gained 20% as higher interest rates supported its business; Okeanis Eco Tankers, up 21% on demand for oil transportation; and gold miner Newmont, which rose 24%. Long-term holdings Apple and Garmin gained 15% and 16%, respectively.
Power-related holdings offset some of those gains. Nextpower fell 35% and GE Vernova declined 21%. GE Aerospace dropped 16% as air travel weakened. The results show how energy, infrastructure and cyclical businesses can remain exposed to changes in interest rates, commodity prices and demand even when broader equity indexes are rising.
AI spending expands as data centers face constraints
AHIA said investment in artificial intelligence infrastructure is currently an important contributor to economic growth. Gross domestic product grew 2.1% in the second quarter, broadly in line with its long-term trend, but growth might have been close to zero without the large-scale investment in AI. Spending on computing capacity, data centers and related equipment is expected to continue into the fourth quarter. The market is increasingly focused on whether the pace of investment will slow in 2027 and 2028.
The central question is when new computing capacity will begin to match demand. As capital spending brings more resources online, AI infrastructure could reach a point where supply and demand are more closely balanced for the first time. At the same time, data-center development raises concerns about air pollution, noise, environmental impacts, water use and grid capacity. Community approvals and regulatory reviews may therefore become more significant.
AHIA uses Microsoft Copilot, Bloomberg's ASKB and other specialized AI agents to speed up research and analysis. Its next step is to automate more repetitive work. AI is already being used in software development, document analysis and compliance, fraud detection, information retrieval and drug development. Eli Lilly and Vertex Pharmaceuticals are also using related technologies in biotechnology and pharmaceutical research.
The main risks AHIA identifies involve cybersecurity, defense applications and model autonomy. Tools designed to prevent cybercrime could also be used by attackers. Autonomous unmanned systems and military AI could create additional security risks.
Some AI executives have argued that the release of consumer products and models should slow. New models can help improve the next generation of models, making it harder for regulators and companies to identify problems quickly if development goals or control mechanisms drift. AHIA expects product releases may slow and regulatory scrutiny may increase, although excessive regulation could affect the United States' position in global AI competition.
Trade friction and the energy transition reshape market conditions
AHIA identified higher oil prices, new tariffs and elevated interest rates as key pressures on the economy. Changes in trade relationships, disruptions to goods transportation and friction among traditional trading partners could raise business input costs, feeding through to inflation, interest rates and bond markets.
Structural changes in global energy and auto markets are also affecting oil demand. China has sharply expanded solar capacity in recent years, with additions and total installations in 2025 well above those of the United States and Europe. Electric vehicles now account for about 62% of vehicle sales in China. Analyst Mike McGlone said China's reduced dependence on oil could limit further upward pressure on crude prices.
At the same time, foreign investors hold a smaller share of U.S. Treasuries, and reduced participation by some countries in Treasury auctions may be one factor contributing to higher yields. Changes in oil prices, trade flows and Treasury demand are interacting in ways that keep inflation and interest rates central to asset pricing in the fourth quarter.
AHIA emphasizes yield and liquidity for the fourth quarter
AHIA said higher interest rates have changed the balance between stocks and bonds. Elevated rates reduce the value of outstanding bonds, but yields on newly purchased bonds are now near the higher end of their range over the past two decades. Yields on highly rated corporate bonds have exceeded 6%, while tax-exempt municipal bonds have yielded more than 4%, potentially supporting a gradual increase in fixed-income allocations.
Over the longer term, equities still offer return potential, but markets must contend in the near term with higher rates, tighter consumer spending, a possible slowdown in AI construction and changing global trade conditions. AHIA is therefore inclined to hold more cash, providing a buffer against volatility while preserving liquidity as asset prices shift.
For investors, the key fourth-quarter variables are not limited to the direction of a single index. Oil prices, employment, inflation, Treasury yields and AI capital spending will remain closely linked, and the balance among them will continue to shape bond and equity performance.