A Favorable Macro Backdrop Sets the Stage for Broader Equity Gains

1. Growth Remains Strong, Inflation Continues to Improve The economic backdrop remains constructive as we enter the final quarter of the year. The Atlanta Fed is tracking at 3.7% GDP growth,¹ while recent inflation data continues to show progress. Core PCE came in at 3.1% year-over-year, but the three-month annualized rate is running closer to 2.9% and the six-month rate at 2.3%.² While the year-over-year figure remains above the Fed’s target, the shorter-term trends suggest inflation continues to move in the right direction.

At the same time, economic activity remains healthy. The Chicago PMI rose to 58.0, its strongest reading since early 2025, while S&P Global manufacturing and services came in at 55.9 and 58.8, respectively.³ The latest employment report was softer on the surface, but the three-month average of payroll gains is around 51,000 and the unemployment rate is at 4.2%. Average hourly earnings increased just 3.0% year-over-year versus expectations of 3.1%, providing another indication that wage pressures are moderating. Overall, we are seeing continued growth without a renewed acceleration in inflation, which is a favorable combination for markets.

2. Rates May Have Reached a Near-Term Peak The bond market has also become an important part of the equity story. Treasury yields moved lower following the latest employment report, and we believe the 10-year may have reached a near-term peak. That does not mean we expect yields to fall back to 4%, but a stabilization or decline from current levels would remove some pressure from equity valuations. After the sharp move in rates and the weakness across parts of the fixed-income market, the setup is becoming more constructive.

With growth running near 4%, we also believe the higher nominal growth environment should ultimately translate into stronger corporate earnings. While a 10-year yield above 5% could lead some investors to shift from equities into fixed income based on yield alone, we believe stronger earnings can offset that pressure. The combination of solid nominal GDP growth and continued earnings momentum remains supportive of equities.

3. Earnings Could Drive Broader Participation Earnings season begins in roughly two weeks, with the banks among the first major companies to report. Expectations remain favorable. Earnings growth was initially expected to be around 10% for the year, but last quarter earnings increased 52%, or 32% excluding Amazon and Alphabet, which benefited from investment gains related to Anthropic and OpenAI.⁴ We see little reason for the underlying earnings trend to change meaningfully this quarter.

Technology and AI-related spending will remain important drivers, but we expect earnings strength to extend beyond the Magnificent 7. Industrials should benefit from continued capital investment, select consumer discretionary companies remain well positioned, and financials could be particularly interesting after falling roughly 7% last month.⁵ Historically, financials have often rallied into earnings and then sold off, but the recent weakness could set up a different pattern this time around.

We are not looking for the end of Magnificent 7 or technology leadership. Rather, we would like to see broader participation. With October and November historically among the strongest seasonal periods for equities, the combination of healthy economic growth, improving inflation, potentially lower yields and strong earnings expectations creates a favorable setup for the market to broaden into year-end.

4. Fixed Income U.S. Treasury curve bear-steepened over the week, with the long end selling off while the front end rallied. The 30-year yield hit its highest level since 2002, driven by a combination of strong consumer spending data and hawkish Fedspeak. By Friday’s close, the 2-, 10-, and 30-year yields had fallen 11 basis points on the front end and rose 3 and 7 basis points on the back end, respectively. August PCE showed real consumer spending up 0.6%, its largest monthly gain since March 2025, signaling that demand remains strong enough to keep the Fed on a higher-for-longer path and pushing Treasury yields higher. Year-to-date, yields across these maturities have increased by 134, 111, and 79 basis points.⁶

Credit spreads were modestly wider on the week, with both investment-grade and high-yield segments reflecting risk-off sentiment amid rates volatility. Investment-grade spreads widened 4 basis points to +121, while high-yield spreads widened 17 basis points to +345. In the tax-exempt market, municipal yields rallied across the curve, diverging sharply from the Treasury selloff as light new supply and steady fund inflows created more buyers than sellers. Municipal yields in the 2-, 10-, and 30-year fell 18, 22, and 13 basis points, respectively.⁷

Stephanie Link’s TV Schedule:

Return for Selected Indices⁸

All charts are for illustrative purposes only. Past performance does not guarantee future results. Yield, if shown, are for informational purposes only, may change, and do not guarantee future income, return, or investment results. An index is a portfolio of specific securities (such as the S&P 500, Dow Jones Industrial Average and Nasdaq composite), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index.

Sources:

1. Federal Bank of Atlanta: As of October 5, 2026 ↩︎
2. Bloomberg: As of October 5, 2026 ↩︎
3. Bloomberg: As of October 5, 2026 ↩︎
4. Bloomberg: As of October 5, 2026 ↩︎
5. Bloomberg: As of October 5, 2026 ↩︎
6. Bloomberg: As of October 5, 2026 ↩︎
7. Bloomberg: As of October 5, 2026 ↩︎
8. Bloomberg: As of October 5, 2026 ↩︎

Disclosure
Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, as a member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors. All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice. This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.