Financial markets navigated a complex third quarter (Q3) characterized by shifting monetary policy, ongoing geopolitical friction, and remarkably resilient corporate profitability. Despite the headwinds of rising bond yields and elevated energy prices, the S&P 500 managed to generate a 2.0% gain for the quarter bringing the YTD total to 11.8%. The S&P 500 Equal Weighted Index (S&P EW). However, ended the quarter down -2.3%, with YTD performance up 8.6%. International equities, as measured by the MSCI EAFE Index, also posted a positive return of 0.3% in the quarter, up 8.1% YTD.
Fixed income markets faced significant pressure, however, as rates increased meaningfully across the yield curve. The Bloomberg US Intermediate Term Corporate Bond Index, was down -2.3% in Q3, bringing the index down -1.7% YTD.
The performance of the S&P 500 in the third quarter was defined by a delicate tug-ofwar between resilient corporate cash flows and tightening financial conditions. While the headline index gains were sustained by mega-cap technology leaders and companies with strong balance sheets, overall market breadth narrowed noticeably. Companies with higher debt loads, interest-rate-sensitive sectors, and consumer discretionary names faced mounting headwinds as sustained increasing bond yield pressures and volatile energy input costs began to weigh on profitability and household spending.
One of the most anticipated developments for markets in Q3 was the pivot in monetary policy. In September, under the leadership of Chair Kevin Warsh, the Federal Reserve raised short term interest rates, marking the first rate hike in three years. This decisive move underscored the central bank's hawkish stance and its commitment to ensuring inflationary pressures do not resurface amid supply shocks.
The Fed’s move ensured that short-term rates moved higher, but longer-term rate increases generated headlines as well. The 10-year Treasury yield moved to levels not seen since 2002. The 30-year Treasury yield also moved higher to rates reminiscent of the early 2000s. 30-year fixed mortgages, which tend to move with the 10-year Treasury, moved well past 7%. The impact of higher rates was evident in the negative performance of bond indexes for the quarter. Many factors could be driving these rate moves – massive debt issuance for AI data center projects, historically high levels of government debt and/or increasing inflation/growth expectations being a few oft quoted potential causes. Regardless of what is driving the rate moves, it is a global phenomenon – essentially all developed markets experienced rate resets in the quarter. At SGL, we look to keep our bond portfolio average maturity length shorter than the market in general, which helps mitigate some of the impact of higher interest rates.
Chair Warsh has also accelerated his reform agenda, launching specialized task forces to evaluate the Fed's fundamental operations. These include a review of central bank communications (such as the potential elimination of the "dot plot" which shows where the top officials at the Federal Reserve think interest rates are heading over the next few years), an assessment of balance sheet policy aimed at reducing market distortions by shrinking the Fed's footprint, and a modernization of the data sources used to inform policy. The market's realization that the Fed is willing to actively hike rates, rather than simply hold them steady, drove long-term bond yields higher and forced investors to reevaluate their expectations for early 2027 easing.
The third quarter demonstrated that while structural macro risks remain elevated, corporate America's ability to generate robust cash flows and defend profit margins continues to act as a powerful counterbalance.
As always, if you have questions regarding your portfolio, please consult your financial advisor. We appreciate your continued trust in SG Long Financial and look forward to working with you in the future.
Rob Richardson, CFA
Chief Investment Officer
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Important Disclosures
Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal. The S&P 500 Index is a recognized benchmark used by investors and the investment industry for the equity market. Indexes are not a managed portfolio and are not subject to advisory fees or trading costs. Investors cannot invest directly in the S&P 500. Indexes and/or market benchmarks references used throughout this report remain the copyrighted property of their respective owners. Before investing, please carefully consider your investment objectives, risks, charges, and expenses. Views expressed do not necessarily represent the views of S.G. Long Financial Service Corp. (“SGLFS”) and are subject to change at any time based upon market or other conditions. The information provided is for general informational purposes only and should not be considered individualized or personalized investment advice. SGLFS is the parent company of S.G. Long & Company and SGL Investment Advisors, Inc. S.G. Long & Company is a broker-dealer registered with the SEC, a FINRA member firm and a stateregistered investment advisor. SGL Investment Advisors, Inc is a SEC registered investment advisory. Clients and employees of SGLFS may maintain positions discussed herein.