Stocks enter the fourth quarter 1% from a record; the 4.2% Q4 average now competes with 5.28% Treasuries

The S&P 500 begins the fourth quarter up nearly 13% for 2026 and about 1% below its mid-August record, Reuters reported on Sunday. The calendar is on its side: since 1945 the index has risen an average of 4.2% in fourth quarters and gained 85% of the time, according to research firm CFRA. The bond market is the obstacle.

The number behind the number: what cash pays now

The 10-year Treasury yield closed Friday at 5.28%, according to the Treasury's daily yield curve, up from 4.19% on January 2. That is a rise of 109 basis points in nine months. Reuters said the yield touched 5.34% during Thursday's session, its highest in 24 years; the Treasury's official closing figure that day was 5.24%, and the year's highest close was 5.29% on September 30.

Shorter money moved too. The three-month bill yield was 4.19% on Friday against 3.65% at the start of the year. Held for a quarter, that pays about 1.05%, our arithmetic (4.19% divided by four). So the average fourth-quarter stock gain of 4.2% is now only about 3 points better than a risk-free bill over the same three months. In years when bills paid close to nothing, the seasonal edge looked much bigger than it does now.

The midterm statistic, read carefully

CFRA's Sam Stovall says fourth quarters of midterm years have been even better, averaging 6.4%, as election uncertainty lifts. The catch is where those rallies started. The S&P 500 has historically dropped an average of 15% at some point in midterm years, Reuters reported, citing Tracie McMillion of the Wells Fargo Investment Institute. This year's deepest pullback has been 9%, and the index is sitting near its high.

Much of the classic midterm rebound is a recovery from a deep hole. Starting a quarter 1% from a record leaves less of that recovery to happen, which is a reason to treat the 6.4% average as a description of other years rather than a template for this one. McMillion herself told Reuters that investors face headwinds this year despite the seasonal pattern, and Horizon Investment's Chuck Carlson called rates the biggest of them.

What could carry it anyway

Earnings are the counterweight. S&P 500 companies are expected to report third-quarter profit growth of more than 30% from a year earlier, according to LSEG IBES data cited by Reuters. AllianceBernstein's Nelson Yu said the main thing to watch is whether the largest cloud spenders revise their capital spending plans, since that spending underpins the AI trade.

Who feels the yield side

The same move runs through borrowing costs. Freddie Mac's 30-year mortgage average was 7.28% on October 1, according to its weekly survey. For business owners, the effect of 5% Treasuries on building loans and equipment financing is worked through in our Main Street piece, and we covered Friday's jump in yields after the jobs report here.

What traders are watching this week

Minutes from the Fed's last meeting on Wednesday, then the first big earnings reports, with PepsiCo and Delta Air Lines due this week and the large banks the week after, according to Reuters. Live index levels are on our markets page.

Sources: Reuters via Investing.com (CFRA, Wells Fargo Investment Institute, LSEG IBES), U.S. Treasury, Freddie Mac. Calculations are ours. This is market information, not investment advice.