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U.S. stocks entered the fourth quarter with a strong year-to-date gain, but a sharp rise in Treasury yields, the November midterm elections and demanding corporate earnings expectations are testing whether the market can repeat its usual late-year strength. The S&P 500 had risen nearly 13% in 2026 as of Friday, October 2, and was about 1% below its record set in mid-August, Reuters reported.
The immediate pressure is coming from the bond market. The 10-year Treasury yield reached 5.34% on Thursday, its highest level in 24 years, before easing after a weaker-than-expected September jobs report. Investors are also watching the Federal Reserve’s rate outlook, the start of quarterly results and whether major technology companies sustain their spending on artificial-intelligence infrastructure.
Seasonal patterns meet an election year
Historical data provide a favorable backdrop, though not a guarantee of further gains. CFRA data cited by Reuters show the S&P 500 has averaged a 4.2% rise in fourth quarters since 1945, advancing in 85% of them. The fourth quarter of a midterm election year has averaged a 6.4% gain, a pattern CFRA chief investment strategist Sam Stovall associates with uncertainty receding after voting.
The broader record for midterm years has been less encouraging: the index has historically averaged a 15% decline across those years, according to Wells Fargo Investment Institute strategist Tracie McMillion, as cited by Reuters. The market’s deepest pullback so far in 2026 was 9%, she said, and the firm was monitoring the possibility of another setback before Election Day.
The November 3 election will decide control of Congress. McMillion said a change in leadership in both the House and Senate could bring policy consequences for markets. She also said a pullback could present an opportunity, while stopping short of predicting the election outcome or its market effect.
Yields become the near-term test
Treasury yields matter to equities partly because they influence the return investors can receive from government debt and the rates businesses and households pay to borrow. When yields rise, bonds can become more competitive with stocks, while higher financing costs can weigh on company valuations and spending. The recent move has therefore put added pressure on a stock market that has advanced despite elevated borrowing costs.
Reuters attributed the climb in yields to expectations for robust economic growth, energy-driven inflation concerns and increased demand for capital as companies borrow to finance AI expansion. The 10-year yield’s 5.34% peak on Thursday was followed by a retreat after Friday’s employment figures prompted traders to reduce expectations for another immediate Fed rate increase. The Associated Press reported that the yield briefly fell below 5.17% before rebounding to 5.28% as oil prices recovered during the session.
The Fed raised interest rates in September for the first time in three years, seeking to cool inflation that remains above target, Reuters reported. Minutes from that meeting were scheduled for release on Wednesday, October 7, offering investors further detail on policymakers’ discussion. The next policy decision, and whether another increase would be considered in October or December, remained uncertain in the reporting.
Earnings expectations leave little room for disappointment
Results from PepsiCo and Delta Air Lines were due the following week, with major banks set to begin the broader reporting season the week after. Analysts expected S&P 500 companies’ third-quarter earnings to rise more than 30% from a year earlier, according to LSEG IBES data cited by Reuters. Such expectations put attention on both reported results and company guidance.
AI investment is a central part of that scrutiny. Spending by large cloud and technology companies on data centers and related infrastructure has supported profits across a range of businesses, while also driving some firms to issue debt. AllianceBernstein equities head Nelson Yu told Reuters that investors would be watching for changes to hyperscalers’ capital expenditure plans, which could influence companies throughout the AI supply chain.
Contemporaneous Axios reporting put analysts’ estimate for S&P 500 third-quarter earnings growth at 29%, a slightly lower figure than the Reuters report’s LSEG estimate of more than 30%. Axios also noted that strong earnings had helped stocks remain resilient as yields rose. The differing estimates underscore that forecasts vary by data provider, rather than indicating a confirmed earnings outcome.
Friday’s rebound did not settle the outlook
U.S. stocks rose on Friday after the jobs report eased concern that an overheating economy might intensify inflation and force further monetary tightening. The S&P 500 gained 0.7% to 7,722.72, the Dow Jones Industrial Average added 0.5% to 51,176.96 and the Nasdaq Composite rose 1.2% to 27,190.86, according to the Associated Press.
The intraday swings showed how closely equities and bonds were responding to incoming information. The S&P 500 had been up as much as 1.2% in the morning, but gave back part of its advance as oil prices recovered and Treasury yields moved higher again. For the quarter ahead, investors face the scheduled Fed minutes, company results and the November 3 congressional elections; whether earnings growth can offset persistent yield volatility remains an open question.
