Staying Constructive Amid Higher Rates and Energy Costs

U.S. equities should remain supported through the fourth quarter of 2026 because economic resilience, healthy labor markets, strong earnings growth and less demanding valuations outweigh the risks from higher rates and energy costs.

• Crude oil prices have risen approximately 65% since the beginning of 2026 and remained near $100 per barrel, while investment-grade financing costs increased roughly 20%, high-yield borrowing costs nearly 18% and 30-year mortgage rates reached approximately 7%.
• Despite these pressures, real GDP growth averaged approximately 1.8% in 2026 and recent estimates indicate stronger momentum in the third quarter.
• Initial jobless claims were recently 197,000, below both the year-to-date average and the average since early 2022, while job openings still exceed the number of unemployed workers.
• Analysts expect S&P 500 earnings to grow roughly 29% year over year in the third quarter; after adjusting for temporary factors, the article estimates sustainable growth of 6% to 9%, led by Energy, Technology, Communications Services, Financials and Materials.
• The S&P 500 forward earnings multiple fell from approximately 22.2x at the start of the year to roughly 19.1x, even as share prices rose 12.5%, indicating that earnings growth rather than multiple expansion drove the market advance.

Takeaway: The author remains bullish on equities and recommends maintaining disciplined, diversified portfolios, but investors should monitor the lagged effects of high oil prices and borrowing costs, monetary-policy uncertainty, fiscal financing pressures, uncertain AI returns and especially whether Treasury yields stabilize before year-end.