STATE OF THE ECONOMY AND MARKETS
Quarter 3, 2026
The U.S. economy and stock market (S&P 500 Index) continue to show resilience as we move into the latter part of 2026. U.S. economic growth is projected to have increased 2.8% in the third quarter, nearly double that of the second quarter. Stocks dropped slightly to start the quarter but quickly bounced back in the ensuing weeks. The S&P 500 Index is holding near its all-time high, up 4% during the third quarter and 12% for the year.
Economic growth continues to be driven by consumer spending, which accounts for nearly 69% of all economic activity, and by massive amounts of money being invested in artificial intelligence and technology. The labor market remains stable, with unemployment at 4.1%, consistent with an overall healthy economy.
Stock prices are being driven higher by strong corporate earnings and record profit margins. The S&P 500 Index has recorded two consecutive quarters of year-over-year earnings growth above 20%, with projections tracking toward four straight quarters. Increased revenue and profit expectations are being fueled by the continued influx of capital into artificial intelligence and technology.
Notwithstanding the recent strength in the economy and stock market, immediate headwinds still prevail. Increasing bond yields, elevated energy costs and stubborn inflation are all areas of concern and worth keeping an eye on throughout the remainder of the year and into 2027.
The 10-year Treasury yield recently reached 5%, a nearly 20-year high. Higher yields result in increased borrowing costs for consumers and businesses, and offer a competing return to stocks. Increased energy prices and persistent inflation will keep cost-of-living expenses higher for the near-term, potentially putting pressure on consumer spending and slowing economic growth.
Like almost anyone who has spent a career following the U.S. economy and stock market, I tend to be optimistic. Therefore, I leave you with this Warren Buffet quote from his 2021 Berkshire Hathaway annual shareholder letter.
“In its brief 232 years of existence, however, there has been no incubator for unleashing human potential like America. Despite some severe interruptions, our country’s economic progress has been breathtaking. Beyond that, we retain our constitutional aspiration of becoming “a more perfect union.” Progress on that front has been slow, uneven and often discouraging. We have, however, moved forward and will continue to do so. Our unwavering conclusion: Never bet against America.”
As always, we value your relationship and the confidence you have in Adirondack Wealth Management by choosing us as your financial partner. Your relationship team is available to meet with you at your convenience. I encourage you to reach out to them and arrange for a time to talk.
Sincerely,
Michael Brodt
Senior Vice President
Wealth Management Director
STATE OF THE ECONOMY AND MARKETS ARCHIVE
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