October 13, 2026
“Uncertainty is not the enemy of investors. Paying too much for certainty is.”
The third quarter highlighted an increasingly important distinction between the headline market and the market experienced by most companies. While the major averages remained relatively resilient, much of that strength continued to be driven by a small number of large-cap technology and artificial intelligence-related stocks. Strong earnings growth among these industry leaders has largely offset the valuation pressure created by higher interest rates, helping sustain index performance even as broader market participation remained considerably weaker. Beneath the surface, many sectors and individual companies struggled to keep pace.
One of the primary reasons for this divergence has been the persistence of higher interest rates and inflationary pressures. Rising rates have reduced the value investors place on future earnings and have weighed on valuations across much of the market. Large, cash-rich companies have generally been better positioned to absorb elevated borrowing costs and slower economic growth. Smaller companies, by contrast, often rely more heavily on financing to fund operations and expansion, making them particularly sensitive to a higher-rate environment. As financing costs have risen, investor enthusiasm for many smaller and more economically sensitive businesses has faded.
Markets also continue to wrestle with several significant uncertainties. Inflation and interest-rate policy remain at the forefront of investors’ concerns, while ongoing geopolitical conflicts add another layer of unpredictability. The upcoming midterm elections are likewise contributing to investor caution as markets attempt to evaluate the potential impact of future policy decisions. At the same time, our nation’s growing debt burden continues to expand with little indication that policymakers are prepared to address it in a meaningful way. While these challenges are well known, markets often struggle less with bad news than with uncertainty itself.
Encouragingly, the broader market correction that began roughly two months ago may be approaching its later stages. Historically, periods of heightened uncertainty tend to weigh most heavily on markets before key events occur, not after them. As investors gain greater clarity regarding monetary policy, geopolitical developments, and the political landscape, some of today’s uncertainty may begin to diminish.
History also offers a constructive backdrop. The period beginning in the fourth quarter of a midterm election year has historically been one of the strongest stretches in the four-year presidential cycle. While past performance never guarantees future results, markets have often responded favorably as election-related uncertainty fades and attention shifts back toward economic and corporate fundamentals.
As we move into the final months of the year, investor concerns remain elevated across the economic, political, and geopolitical landscape. Yet history suggests that markets often begin looking beyond these concerns before complete clarity arrives. While today’s headlines are focused on interest rates, inflation, elections, and global conflicts, longer-term forces continue to move in a favorable direction. The United States remains a leader in technological innovation, particularly in artificial intelligence, while Millennials and Generation Z are entering their peak earning, investing, and wealth-accumulation years. These powerful long-term trends are likely to endure long after today’s uncertainties have passed. In that sense, uncertainty is not the enemy of investors. Paying too much for certainty often is.
Ralph Scott
Chief Investment Officer
Craig Weston
Senior Managing Director
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