Economy & Markets
- As we enter the final quarter of 2026, the economy looks notably different from where it began the year. Concerns about a potential slowdown or recession have given way to remarkable resilience, with growth on solid footing and momentum building into next year.
- Manufacturing, consumer spending, and capital investment remain strong, while inflation continues to be the primary area of concern. We expect September Core CPI to mark the 67th consecutive month above the Fed’s 2% target.
Equities
- The S&P 500 declined 0.4% in September, with performance heavily concentrated in the Communication Services and Technology sectors, each gaining approximately 4.5%. All other sectors posted negative returns, while international equities lagged, with the MSCI ACWI ex-USA Index falling roughly 2.4%.
- Corporate earnings expectations remain strong, with recent results exceeding forecasts and reinforcing a constructive outlook. Analysts and management teams continue to project approximately 31% earnings growth in 2026. At 19.3x forward earnings, the market trades modestly above its long-term average but remains below the 23x peak reached in late 2025.
Fixed Income
- September was a painful month for bonds as U.S. Treasury yields increased 40-50 basis points across much of the curve.
- Investment-grade credit spreads finished the month at 80 basis points, while all-in yields remained attractive at 6%.
Employment
- The unemployment rate rose to 4.2% in September from 4.1% the prior month, remaining at a historically low level. Job growth of 29,000, combined with downward revisions of 60,000 to the previous two months, reinforced the low-hire, low-fire labor market that has characterized the past two years.
- Wage growth slowed to 3.0% year-over-year in September, its weakest pace in years and below inflation, underscoring the ongoing challenge higher prices pose to consumers.
Federal Reserve
- The Fed raised rates at their September meeting by an expected 0.25% and signaled a bias toward future increases. Investors now expect another rate increase at the December meeting.
- The yield on the 10-year Treasury increased by 0.83% in the third quarter, the biggest quarterly increase since 1994. 30-year mortgage rates have risen from 5.98% in February to 7.40% in the first week of October.
Issues to Watch
- Investors are increasingly anticipating a shift in House leadership from Republicans to Democrats, with the Senate potentially following suit.
- Turmoil in the Middle East looks likely to continue after the election. A cold winter could lead to even higher energy prices due to constrained supplies.
1 Data provided by Bloomberg. Metrics are as of month-end or most recent publication
2 Provided by U.S. Real GDP Economic Forecast Survey Median
3 Provided by World Real GDP Economic Forecast Survey Median
4 Provided by Bloomberg Intelligence Forecast
5 Provided by World Probability Forecast
6 Arrows represent a month-over-month change
Asset Allocation / Tactical Positioning
7 Equity tactical weights are relative to the Cambridge Trust Wealth Management Core Equity allocation and is comprised of 80% S&P 500 and 20% MSCI AC World ex-U.S. Index.
8 Fixed Income tactical weights are relative to the Cambridge Trust Wealth Management Core Taxable allocation and is comprised of 100% Barclays Intermediate Gov/Credit Index.
9 Below investment grade holdings include high yield and emerging market debt mutual funds. Represents an out-of-benchmark allocation that will be reflected as an overweight position relative to the Barclays Intermediate Gov/Credit Index if any allocation is held.
10 Alternative tactical weights represent an out-of-benchmark allocation that will be reflected as an overweight position when utilized and neutral position when not.
11 Direction arrow highlights any recent changes of the overall allocation after a recent tactical asset allocation or strategy change. Last changes were made at September 2026 Asset Allocation Committee meeting.
Views are as of October 2026 and are subject to change based on market conditions and other factors. The opinions expressed herein are those of the author(s), and do not necessarily reflect those of Eastern Bankshares, Inc., Eastern Bank, or any affiliated entities. Views and opinions expressed are current as of the date appearing on this material; all views and opinions herein are subject to change without notice based on market conditions and other factors. These views and opinions should not be construed as a recommendation for any specific security or sector. This material is for your private information, and we are not soliciting any action based on it. The information in this report has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is neither representation nor warranty as to the accuracy of, nor liability for any decisions made based on such information. Past performance does not guarantee future performance.