Crossmark Global Investments has released its fourth quarter 2026 investment commentary, providing a comprehensive analysis of market conditions and economic outlook as the year enters its final months. The third quarter of 2026 presented mixed results for equity markets. While the S&P 500 advanced 2.03 percent and the NASDAQ gained 2.47 percent, the Dow Jones Industrial Average declined 2.70 percent and the Russell 2000 fell 7.52 percent, indicating weak market breadth.
The equal-weight S&P 500 declined 2.23 percent, lagging the cap-weighted index by 426 basis points. Treasury yields rose significantly during the quarter, with the 10-year yield increasing from 4.38 percent on June 30, 2026 to 5.26 percent by September 30, 2026, reaching levels not seen since 2002. WTI crude oil advanced 30 percent as U.S.-Iran peace hopes diminished.
Corporate earnings growth for the second quarter exceeded 50 percent, and exceeded 30 percent excluding major one-time gains. The technology sector experienced notable volatility during the quarter. The Semiconductor Index (SOX) declined 11.4 percent, while Microsoft and Meta, two of the Magnificent 7 stocks, demonstrated resilience with gains of 37.5 percent and 28.7 percent respectively.
The Federal Reserve raised rates by 25 basis points in September, marking its first increase since July 2023. The best-performing sectors were energy at 16.48 percent, technology at 7.06 percent, and healthcare at 6.03 percent. The worst-performing sectors were utilities at negative 13.03 percent and industrials at negative 9.91 percent.
Crossmark's analysis identifies several key themes shaping the current investment environment. The global economy has demonstrated surprising resilience through 2026, with industrial production and exports rebounding to record highs despite geopolitical tensions. However, market expectations have shifted dramatically from rate cuts to rate hikes, resulting in higher borrowing costs.
Long-dated Treasurys have declined 10 percent while equity forward price-to-earnings ratios have compressed approximately 3x. Despite these headwinds, equities remain up 12 percent year-to-date due to significantly stronger-than-expected earnings growth. The investment firm highlights three positive fundamental factors: a stable labor market, booming technology investments, and strong earnings growth.
However, these are offset by negative factors including rising oil prices, increasing cost of money due to Fed rate hikes, and fading fiscal stimulus. Crossmark characterizes the bond market situation as requiring careful monitoring. The 10-year Treasury yield has risen nearly 70 basis points in recent months, with much of this increase attributed to geopolitical factors rather than fundamental economic deterioration.
Yields across the Treasury curve have moved higher irregularly since COVID-19 in 2020, with acceleration in recent months. Economic statistics have recently strengthened, with purchasing manager indices surging last week. The Federal Reserve's policy rate remains below nominal growth levels, suggesting that interest rates remain stimulative rather than restrictive.
The two-year yield is significantly higher than the current Fed funds rate, implying additional Fed tightening may be required. The S&P 500's valuation has contracted from 22x forward earnings to 19x forward earnings during the third quarter. While the index remains approximately 6 percent above its 200-day moving average, more than half of individual stocks have fallen below their 200-day moving average.
The firm notes concerning technical indicators: the S&P 500 recently advanced more than 1 percent to within 1 percent of a new 52-week high while new lows outnumbered new highs. Crossmark notes this dynamic last occurred on December 21, 1999, a few months before the dotcom bubble top, and prior to that only on July 23, 1929. Artificial intelligence continues to dominate market discussions and investment decisions.
AI-related capital expenditures accounted for an estimated 27 percent of U.S. fixed investment in the second quarter of 2026, with cumulative investment in the sector exceeding 2 percent of U.S. GDP over the past three years. Crossmark describes this surge as one of the largest tech-related booms over the past two centuries, comparable only to the UK railway mania of the 1840s in terms of investment concentration.
Regarding macroeconomic fundamentals, Crossmark reports that U.S. real GDP is tracking 5 percent on a quarter-over-quarter annualized rate in the third quarter, with nominal GDP running approximately 8 percent. National Income and Product Accounts corporate profits increased 23 percent year-over-year in the second quarter, and data center construction surged 57 percent year-over-year in July. However, the investment firm acknowledges that from these aggressive growth rates, a slowdown is likely given persistently higher oil prices, central bank tightening, higher long-term rates, and a turning-negative U.S. fiscal impulse.
Crossmark does not forecast a recession but rather a mid-cycle slowdown, citing credit conditions that remain relatively benign, rising consumer net worth, restrained employment reductions, availability of gig work, increased new business formation, and accelerating trend productivity growth. The firm's outlook for the fourth quarter assumes the Federal Reserve will raise rates again, inflation will remain sticky, and fourth quarter GDP growth will slow somewhat from the strong third quarter performance. The firm expects the labor market to remain stable, earnings to remain strong though with visibility on first-half 2027 slowdown, and bond market volatility with rates somewhat higher.
Equity markets are expected to struggle and make little forward progress, with technology and AI investment remaining top of mind, oil prices remaining stubbornly high, and mid-term elections favoring Democrats. Crossmark's assessment of its ten predictions made in December 2025 shows five predictions heading in the right direction, zero heading in the wrong direction, and five too soon or too close to call. The firm's analysis suggests that while numerous U.S. economic variables are growing quickly, significant headwinds are intensifying.
The firm states it would be somewhat cautious in equities, noting a little cash is acceptable, and in balanced accounts, a few more bonds probably make sense. Source: Crossmark Global Investments Inc., Quarterly Investment Commentary 4Q26, published October 5, 2026.
Source: crossmarkglobal.com