FOCUS Quarterly Report | Q3 2026

Higher rates and changing AI leadership represent a rotation within a still-supportive market rather than a broad retreat from risk assets.

• The U.S. 10-year yield rose nearly 100 basis points in 2026, expectations shifted from two Fed cuts to three hikes, Brent crude stayed near $100 a barrel, and the dollar strengthened nearly 4%; only 10-year breakevens rose 10 basis points, so higher real yields explain most of the rate move.
• Horizon argues that strong growth, earnings and competition for capital make higher rates warranted, noting that the 1990s combined an average 10-year yield of 6.6% with strong real returns for both stocks and bonds.
• Earnings growth, supported by AI demand, healthy consumers and a stable labor market, drove year-to-date equity gains across regions and styles while valuation declines detracted; higher rates now leave less room for earnings disappointments.
• The AI trade is moving from the Magnificent 7 spenders and semiconductor recipients toward companies that can convert AI into productivity and margin growth: software rose 27% in Q3 while semiconductors fell 7%, despite continued infrastructure demand and solid earnings.

Takeaway: Horizon remains constructive on equities and sees fixed income as more attractive, but recommends selectivity because leadership is broadening, valuations face pressure and the market's resilience depends increasingly on continued earnings growth.