In this latest installment of our newsletter, we share our observations of the markets and the economy in the third quarter of 2026.  Click here to go to the full October 2026 report on our website.  Following are the highlights:

• The third quarter ended September 30th, 2026, saw increased volatility across both equity and bond markets due to continued uncertainties around the Iran War, skyrocketing oil prices, persistent inflation, and the upcoming U.S. midterm elections.
• The S&P 500 Index, the broadest measure of the U.S. equity market, posted a total return of 2.3% in the third quarter of 2026, a notable slowdown from the 15.2% total return in the second quarter.  But for the nine months ended September 30th, the S&P 500 Index still notched a double-digit return of 12.7%.
• Much of the notable activity during the third quarter happened in the usually sleepy bond market, where a steep rise in yields in September sent bond prices falling.  As a result, the Bloomberg Aggregate Bond Index declined -3.5% in Q3 and -2.9% for the year-to-date period.
• The rise in U.S. interest rates has occurred across the yield curve, meaning short, intermediate, and long-term bonds have all seen an increase in their respective yields.  However, the gap between short-term and long-term rates has narrowed significantly.
• For example, the benchmark 10-year Treasury yield topped 5.3% in late September, a rate not seen since 2002, while the 30-year Treasury yield rose above 5.5%, a level last seen in 2004.  The takeaway for many investors has been that it may not be worth taking the duration risk of longer-term bonds for only a marginally higher yield.
• The rapid rise in rates has not been limited to the U.S., with global bond yields reaching their highest levels since the mid-2000s, reflecting the mounting uncertainties around the Iran and Middle East conflicts, global trade disruptions, and persistent inflation. 
• The Federal Open Market Committee (FOMC) raised its benchmark, short-term, Fed funds rate at its September meeting by 25 basis points (1/4 of 1%) to a target range of 3.75% to 4.0%.  It was the first rate increase since 2023 and was driven mainly by stubbornly high inflation that has stayed well above the Fed’s target annual rate of 2%.  Despite outside pressures, the FOMC stuck to its policy priorities and voted unanimously (12-0) for the rate hike.
• Despite all the economic challenges posed by higher inflation and interest rates, the U.S. economy continues to show remarkable resilience in several areas, including robust corporate earnings, positive GDP growth, and steady consumer spending.
• We are watching the labor market closely because, while remarkably steady over the last few years, it did post disappointing job growth data in September, which could impact everything from GDP growth to future Fed actions around interest rates.
• Our near-term outlook is that volatility may continue in equity and bond markets until there is more clarity around the conflicts in the Middle East, as well as the direction of oil prices, inflation, and interest rates.
• Despite these uncertainties, we do expect the U.S. economy to remain on a positive growth trajectory and for corporate earnings to continue to grow for the remainder of this year and into next year. 
• We also expect the A.I. infrastructure boom to continue to drive growth in a variety of sectors, including information technology, healthcare, financial services, communication services, and utilities.
• Overall, our long-term, time-tested investment philosophy remains unchanged and continues to favor high-quality companies with strong revenue and cash flow characteristics, leading market shares, wide economic moats, and solid growth prospects.  We believe our active approach to individual security selection allows us to construct broadly diversified client portfolios designed to weather market turmoil and be well-positioned for long-term growth and appreciation.

The Edgemoor Team

In this latest installment of our newsletter, we share our observations of the markets and the economy in the second quarter of 2026.  Click here to go to the full July 2026 report on our website.  Following are the highlights:

• Equity markets rebounded strongly in the second quarter ended June 30, 2026, after their sharp sell-off in March tied to the start of the U.S. – Iran War. 
• Markets pushed higher in Q2 despite a series of daunting world events – including the escalation of tensions with Iran and throughout the Middle East, an historic oil shock tied to the closing of the Strait of Hormuz, as well as concerns about higher-for-longer inflation and interest rates, and lingering questions around a potential AI bubble. 
• The S&P 500 Index, the broadest measure of the U.S. equity market, posted a total return of 15.2% in Q2, its best second quarter performance since 2020.  It also reversed the negative total return in Q1, which was driven by the sharp sell-off in March.  For the year-to-date period ending June 30th, the S&P 500 index returned 10.2%.
• Within the S&P 500 Index, 9 of the 11 industry sectors generated positive returns in the second quarter, while only two posted negative returns.  Technology stocks reclaimed the top position in terms of quarterly outperformance, returning 31.8% in Q2, driven largely by surges in semiconductor chip makers and other beneficiaries of AI-related spending. However, other sectors like industrials, financials, and healthcare also posted strong returns, as the market continued to broaden beyond the Magnificent 7 technology behemoths.
• Many investors have been asking the question, “How does the stock market keep hitting new highs when the world seems to be filled with so much turmoil?”  To answer that question, we need to look at corporate earnings.
• Right now, corporate earnings are on a tear.  They have been growing at double-digit rates for the last three years and are showing no signs of slowing down. The growth is partially explained by the many companies benefiting from massive AI spending, but it’s not actually all tied to AI.  Other sectors including energy, communications services, and materials have also seen significant earnings growth so far in 2026.
• We believe that strong corporate fundamentals, which include earnings growth, revenue expansion, and balance sheet strength, provide the underpinnings for positive, sustainable market returns over the long term.
• Artificial Intelligence and its massive capital expenditures continue to be a defining force in the global economic landscape.  A multi-year capex cycle is underway across data centers, power generation, and chip manufacturing, with more than $5 trillion projected to be spent through 2030. 
• Elsewhere in the economy, U.S GDP growth remains positive, consumer spending has shown remarkable resilience, and the labor market is slow but stable.  Overall, these positive factors suggest slow but steady economic growth, with little near-term risk of recession in the U.S. economy.
• Of course, the U.S. and global economies do face several economic headwinds which could delay or derail near-term growth.  The most concerning issue is inflation, which has evolved meaningfully since the start of the year and is impacting almost every sector of the economy.
• Higher inflation has also meant higher interest rates.  At the beginning of 2026, investors expected the Federal Reserve to cut interest rates during the year.  But that expectation changed with the inflation pressures brought on by the Mideast war, and the markets are now pricing in a higher-for-longer interest rate environment.  Higher sustained interest rates tend to undermine economic growth.
• Although we expect volatility to continue until there is more clarity around the war in the Middle East, the direction of inflation and interest rates, and the outcome of the midterm elections, we remain optimistic about the longer-term prospects for the U.S. economy and the stock market. 
• Our long-term investment philosophy continues to favor value-oriented, dividend-paying stocks and other securities of companies that have strong revenue and cash flow characteristics, leading market shares, wide economic moats, and solid growth prospects.
• We believe our active approach to individual security selection leads to broadly diversified portfolios across industries, market capitalizations, and geographies, allowing our client portfolios to weather market turmoil and be well-positioned for long-term growth and appreciation.

The Edgemoor Team

In this latest installment of our newsletter, we share our observations of the markets and the economy in the first quarter of 2026.  Click here to go to the full April 2026 report on our website.  Following are the highlights:

• Uncertainty was the closing theme of the first quarter of 2026, with all major indices selling off sharply in March amid heightened concerns about the length and breadth of the war in the Middle East. 
• For the quarter, the S&P 500 Index, the broadest measure of the U.S. equity market, after a 5% decline in March alone. It was the weakest first-quarter performance by the S&P 500 since 2022. 
• The bond market, as represented by the Bloomberg Aggregate Bond Index, ended the quarter flat, though it also experienced significant volatility during the quarter.  Overall, yields climbed while prices fell, with the benchmark 10-year Treasury hitting a high of 4.4% in late March.
• The CBOE Volatility Index, or VIX, captured these swings, starting at a low point of 14.5 in January and peaking at a high of 31 in late March.  The historical average of the index, which is a forward-looking measure of equity volatility, is 19.5.
• Finally, crude oil spiked during the quarter from roughly $60 per barrel, where it hovered for most of January and February, to over $100 per barrel by mid-March, reflecting traders’ fears of a prolonged disruption in global shipments of crude oil through the Strait of Hormuz, where roughly 20% of worldwide oil and gas shipments pass.
• The U.S. economy now faces heightened uncertainty in the near term due to the geopolitical risks coming out of the Middle East, and the impacts are already being seen in higher inflation and slowing growth.    
• The U.S. Consumer Price Index (CPI), the broadest measure of inflation, surged to 3.3% year-over-year in March, due to the sharp rise in oil and gas prices.
• The U.S. GDP growth rate slowed to just 0.5% in the fourth quarter of 2025, significantly lower than the 4.4% growth registered in Q3 and primarily due to the federal government shutdown in October and November.  The growth rate for the first quarter of 2026 is currently projected at a more normalized 2% by the Atlanta Fed GDPNow forecast, but that does not yet factor in the impact of higher energy and related costs on economic growth during March. 
• Despite the short-term uncertainty, there is some good economic news worth noting.  Corporate earnings, which are the main driver of long-term stock market performance, have remained strong and resilient.  The estimated growth rate for S&P 500 corporate earnings in Q1 2026 is 13% year-over-year which, if it occurs, would mark the sixth straight quarter of double-digit earnings growth for the index.
• Given the heightened volatility in equity markets, we are maintaining a cautious stance for the near term.  However, we are also keenly aware that the sell-off in certain sectors does present the potential for finding new opportunities, which we are actively evaluating.  All of this underscores the importance of our active approach to individual security selection, particularly in a volatile and uncertain market environment. 
• In addition, we believe the income securities, bonds, and high dividend-paying stocks that we own for clients with balanced portfolios have performed well amidst the market volatility.  With target yields of 4% – 6%, these securities offer a nice income cushion in client portfolios.  Additionally, we continue to find 6-to-12 month Treasury bills with annualized yields of 3.7% – 3.8% attractive.
• Overall, our long-term investment philosophy continues to favor value-oriented, dividend-paying stocks and other securities of companies that have strong revenue and cash flow characteristics, leading market shares, wide economic moats, and solid growth prospects.
• While our near-term outlook is guarded, we remain optimistic about the long-term strength and resiliency of the U.S. economy and the innovative, productive, and profitable companies that drive it forward.

The Edgemoor Team

In this latest installment of our newsletter, we share our observations of the markets and the economy in 2025.  Click here to go to the full January 2026 report on our website.  Following are the highlights:

• In 2025, U.S. markets experienced significant volatility at the start of the year but ended it with most major stock indices near record highs.

• There was a sharp selloff in April 2025 following the announcement of new tariffs on nearly all U.S. trading partners, which sent the S&P 500 Index down nearly 20%, briefly approaching bear market territory. However, U.S. equities staged a remarkably quick recovery when many of the tariffs were paused just a week later.  By late June, the S&P 500 was once again reaching record highs, as trade conditions stabilized, corporate earnings remained strong, and AI-related investments continued at a rapid pace.

• For the year, the S&P 500 Index delivered a total return of 17.9%, representing the third consecutive year of double-digit returns for equity investor.  The cumulative return for the S&P 500 over the last three years topped 78%, in quite a remarkable multi-year performance.

• Bond investors also saw positive returns in 2025, with the Bloomberg Aggregate Bond Index returning a strong 7.3% for the year.

• Although still dominated by U.S. mega-cap technology stocks, the equity rally did broaden as the year progressed, with all 11 sectors of the S&P 500 ending the year in positive territory.  Strong performers outside of the tech sector included industrials, financials, and utilities.  Lagging sectors, though still positive, were consumer, energy, and real estate.

• International stocks also outperformed the S&P 500, with the MSCI All Country World Index returning over 30% in 2025.
• Artificial Intelligence (AI) was the dominant theme of the year, as this transformative technology was a key driver of global economic growth and market returns. The AI Revolution has already proved transformative in a myriad of ways, from workflow efficiencies to productivity gains and medical breakthroughs.  But the future pace of progress and user adoption remains uncertain, and therefore the returns on the massive investments being made by big tech companies may vary widely. 

• Overall, the U.S. economy continued to show remarkable resilience in 2025.  U.S. GDP grew at a better-than-expected annual rate of 4.3% in the third quarter of 2025, the fastest pace in two years and significantly higher than the 3.3% rate that economists expected.  The growth was driven by robust consumer spending, rebounding exports, slowing imports, and increased government spending (prior to the shutdown).

• Another bright spot in the economy has been corporate earnings, which continued to grow at an impressive clip in 2025.  Year-over-year earnings of the S&P 500 index grew by a better-than-expected 14% in Q3, marking the fourth consecutive quarter of double-digit growth for earnings.  For the fourth quarter, earnings are expected to grow by a solid 8.3%, and for the full year 2025, the figure is projected to be 10.8% higher than 2024 earnings.

• Despite the overall positive state of the U.S. economy, headwinds remain.  The U.S. labor market took the spotlight from inflation in 2025, as it lost much of the positive momentum it displayed in 2024. Over the course of the year, new job growth declined steadily, hiring slowed significantly, and wage growth was flat.  The U.S. unemployment rate climbed steadily over the course of 2025, starting the year at a 4.0% rate and ending the year at a 4.4% rate in December.

• Inflation also remained above the Fed’s target rate of 2.0% all year.  The Consumer Price Index (CPI), the broadest measure of inflation, increased by 2.7% year-over-year in December.  Elevated costs for food, shelter, and medical services continued to drive inflation.  The expectation for 2026 is an annual inflation rate stuck between 2.4% and 2.7%, according to economists.    

• After three consecutive years of double-digit gains in the market, we are somewhat cautious on equities in the near-term.  But our long-term view of the U.S. market remains bullish.

• We continue to emphasize to our clients the importance of sticking to a long-term investment plan focused on their specific goals and objectives.  We believe in the importance of staying invested, even during market downturns.   And, we believe our patient, disciplined approach to individual security selection offers our clients strong, long-term return potential in a transparent, cost effective, and tax efficient manner.

• We appreciate your confidence in our time-tested investment philosophy, and we remain steadfast in our commitment to helping our clients and their families reach their long-term financial goals.

The Edgemoor Team

In this latest installment of our newsletter, we share our observations of the markets and the economy in the third quarter of 2025.  Click here to go to the full report on our website.  Following are the highlights:

• Stocks registered another record quarter during the three months ended September 30^th, posting their strongest third quarter performance since 2020. The S&P 500 Index hit 23 record highs during the period, among the most ever in a single quarter.
• The S&P 500 Index posted a total return of 8.1% and the Nasdaq returned 11.2% in the third quarter, which came on the heels of double digit returns in the second quarter for both indices.  Year-to-date through September 30th, the S&P 500 has delivered a total return of 14.8% and the Nasdaq has returned 17.3%.
• Bonds also posted gains, with the Bloomberg Barclays Aggregate Bond Index returning 2.0% in the third quarter and 6.1% year-to-date
• Momentum built throughout the quarter as market volatility remained unusually low. Investor sentiment was lifted by resilient corporate earnings, continued optimism around artificial intelligence (AI), and expectations for a new cycle of monetary easing. All of these positives played out despite ongoing concerns about tariff and trade policies, slowing labor conditions, and geopolitical crises around the world. 
• Technology and communication stocks once again drove the rally, however a strong showing by industrial, financial, and materials stocks fueled a more broad-based market rally in Q3 than has been seen for quite some time. For the first nine months of 2025, all eleven sectors of the S&P 500 Index have generated positive returns.
• The Federal Reserve announced its first interest rate cut of the year at its September 17th meeting, cutting its benchmark short-term rate by one-quarter of 1% (or 25 basis points) to a target range of 4.0% – 4.25%.  This marked the first rate cut since December 2024 and was largely prompted by a softer-than-expected August jobs report.  The move was seen as a measured step to support economic growth, by balancing concerns about inflation with the need to support the labor market.
• The U.S. economy has been sending somewhat mixed messages, with strong GDP growth counter-balanced by a slowing labor market.  U.S GDP grew at a better-than-expected annual rate of 3.8% in the second quarter of 2025, according to the final estimate of the U.S. Bureau of Economic Analysis.  For the third quarter ended September 30th, the forecasts for GDP growth range from 3.9% (the Fed’s GDPNow model) to 2.5% (the New York Fed’s projection). 
• Another bright spot in the economy has been corporate earnings, which have continued to grow at a solid clip so far this year. Year-over-year earnings of the S&P 500 Index grew by 11% in Q2 and are expected to grow by nearly 8% in Q3, which would be the ninth consecutive quarter of earnings growth for the index.
• But not all the economic news is this optimistic, with the U.S. labor market starting to show some cracks.  The August unemployment rate rose to 4.3%, up from 4.2% in July, as a modest 22,000 jobs were added during the month.  The unemployment rate has shown a steady uptick since June, when the rate stood at 4.1%.  Persistently weak hiring since the spring has contributed to the uptick, but the lack of mass firings has also kept a lid on unemployment.
• Consumer confidence also fell in September due to growing worries about the labor market.  And fears about inflation re-igniting continued to play out in August.  The Consumer Price Index (CPI), the broadest measure of inflation, increased by 2.9% year-over-year in August 2025, up from 2.7% in July.  Elevated costs for food, shelter and services contributed to the increase.
• Adding to the uncertainties, Congress failed to pass a continuing resolution to fund the government beyond midnight on September 30th, causing the government to shut down.  Prolonged shutdowns can impair economic activity and reduce government revenues and spending.  However, financial markets have historically treated shutdowns as a short-term disruption, triggering a typical “risk-off” reaction.  That means that volatility can rise, the dollar may fall, and stock markets can sell-off.  But the depth of a sell-off tends to mirror the length of the shutdown, with markets bouncing back quickly once government operations are restored. 
• Looking forward, we are somewhat cautious on equities in the near term given the economic, fiscal, and geo-political uncertainties.  We also consider the broad market to be fairly valued, based on the S&P 500’s current forward price-to-earnings ratio of approximately 22.5 times, just above its 5-year average of 20 times.
• However, we believe that many parts of the market warrant valuations higher than historical averages based on factors like technological progress, productivity advances, and asset-light business models that have produced consistently higher profit margins and free cash flow for a large number of companies in the S&P 500 Index.
• In addition, not all segments of the market carry lofty valuations.  For example, many healthcare, energy, and financial stocks are trading substantially below the market’s average P/E multiple, and we continue to look for opportunities in these and other undervalued sectors.
• Overall, we continue to favor more value-oriented, dividend-paying stocks that have strong cash flow characteristics, leading market share, a wide economic moat, and solid growth prospects.
• While we still own 6-12 month Treasury bills with annualized yields just below 4% for excess cash, we are on the lookout for additional income securities as those Treasury yields decline.
• We continue to emphasize to our clients the importance of sticking to a long-term investment plan focused on their specific goals and objectives.  We believe our patient, disciplined approach to individual security selection offers our clients strong, long-term return potential in a transparent, cost effective, and tax efficient manner.
• We appreciate your confidence in our time-tested investment philosophy, and we remain steadfast in our commitment to helping our clients and their families reach their long-term financial goals.

The Edgemoor Team