As we enter the fourth quarter of 2026, investors have a lot on their minds. Diversified portfolios have provided satisfactory returns through 9/30/2026, but most bond investments have lost value due to the rise in interest rates around the globe. Oil prices have moved back up to around $100 per barrel, pulling inflation higher and pushing the US Federal Reserve Bank to raise the Fed Funds Rate in September after cutting rates in 2025. The ongoing wars in Ukraine and Iran show no signs of progress toward peace and our country is divided with weeks until the midterm elections.
Despite these headwinds, the US economy, as measured by Gross Domestic Product, has grown at a 2+% annual rate so far in 2026. A stable job market with the unemployment rate slightly above 4% means US consumers continue to spend. Business spending has increased as companies invest in artificial intelligence services and technology companies spend hundreds of billions of dollars to build data centers to meet demand for their products. Corporate earnings growth has been above 20% in the first two quarters of 2026, with predictions of 30% growth in 3rd quarter earnings.
While the economy has been resilient, higher interest rates could slow down economic growth and contribute to further erosion in the value of bond investments. The Federal Reserve raised rates to slow inflation, but the bond market is also suffering due to the enormous issuance of new government debt, led by nearly $2 trillion in annual US deficit spending. On top of that, technology companies have issued around $500 billion in new bonds in 2026 to finance the buildout of data centers required to run their AI businesses.
The combination of strong economic growth and record issuance of new debt has driven long-term interest rates to levels not seen since before the financial crisis in 2008. Today’s higher rates are a double-edged sword for investors. The values of most bonds have declined in recent years as interest rates moved back up to historical levels. But today’s higher interest rates provide strong regular income and make owning bonds more attractive. Despite the recent declines in bond values, we continue to believe they are an important part of a diversified investment portfolio, especially for retirees and people approaching retirement.
Of course, the elephants in the room are the current geopolitical issues and the US mid-term elections. High oil prices resulting from the conflict with Iran and the Russia-Ukraine war are driving inflation and the “affordability” issue. An optimist might think that after the election, cooler heads will prevail and both conflicts will wind down in 2027. However, history shows that geopolitical battles tend to drag on and lasting peace is hard to achieve.
History also shows that investment markets are skittish before elections and breathe a sigh of relief after the election results are known. Elections can bring some clarity to government policy in the near term and allow world leaders, businesses and voters to adjust to the new makeup of Congress, at least until the next election takes over the news cycle. As long-term investors, we should feel positive about higher corporate earnings for stocks and higher interest rate payments for bonds. Maintaining a diversified investment portfolio aligned with a personal financial plan is the best strategy to help us reach our financial goals.
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Christopher Borden is a financial advisor and Managing Partner with Canby Financial Advisors, an Investment Adviser registered with the U.S. Securities & Exchange Commission. Chris can be reached at 508.598.1082 or cborden@canbyfinancial.com.
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