In Your Money This Week, Andrew and I recap the third quarter and look at where markets and the economy stand heading into the rest of the year.
The S&P 500 is near an all-time high, and earnings season starts next week with expectations still strong. One thing that stood out in the JPMorgan Guide to the Markets is that stocks have actually gotten cheaper on a forward P/E basis this year because earnings expectations have continued to rise.
We also looked at market concentration. The ten largest companies make up about 40% of the S&P 500, but they also generate roughly 36% of its earnings. That doesn’t eliminate concentration risk, but it helps explain why those companies have become such a large part of the index.
Another useful reminder: market declines are normal. Over the last 46 years, the S&P 500 has had an average intra-year decline of about 14%, even though most of those years still finished positive. Volatility is part of owning stocks.
On inflation, today’s picture looks different from 2022. Core goods are contributing very little now compared to back then, while shelter, services and energy are driving more of the inflation pressure.
Bonds also look more interesting after a difficult stretch. Higher yields mean more income and more cushion if rates rise further, while falling rates could provide additional upside.
And one of the most practical charts we reviewed showed what can happen when investors don’t rebalance. A portfolio that started at 60% stocks and 40% bonds at the end of 2019 would now be about 74% stocks and 26% bonds if it were simply left alone.
That’s a very different risk profile, even though the investor never made an active decision to take more risk.
Andrew and I get into this and more in this week’s Your Money This Week video followed by my Weekly Reads and latest book recommendation.
Weekly Reads
When the 4% Rule for Spending in Retirement Works—and When It Doesn’t by The Wall Street Journal
People planning for retirement should treat the 4% rule as a starting point rather than a guarantee, because its success depends heavily on inflation, market returns, and portfolio allocation. In these simulations, the strategy succeeded 81.5% of the time under baseline assumptions, but the odds fell sharply with sustained 6% inflation, a lost decade for stocks, or a portfolio invested entirely in bonds. The practical implication is to maintain enough growth exposure and be prepared to adjust spending if inflation stays high or poor market returns arrive early in retirement.
Christine Benz: 5 Investments You Don’t Really Need by Morningstar
People approaching or in retirement can keep their portfolios relatively simple with broad U.S. and international stocks, high-quality fixed income, and enough cash to cover near-term spending needs. Separate allocations to real estate equities, sector funds, and thematic funds are often unnecessary because they can duplicate exposures already held in a broad stock portfolio and may not provide reliable diversification. Long-term bonds and high-yield bonds can also be skipped in many cases, since long bonds can add substantial volatility while high-yield bonds often behave more like stocks than like a true portfolio stabilizer.
AI Is Driving Up Treasury Yields: ‘It Just Touches Everything’ by Bloomberg
AI is increasingly putting upward pressure on longer-term bond yields because hyperscalers and other companies are issuing enormous amounts of debt to finance data centers and other infrastructure, forcing Treasuries and corporate borrowers to compete for the same pool of investor capital. Investment-grade corporate issuance is running at a record pace, the biggest tech companies have already borrowed roughly $200 billion, and some estimates suggest the resulting corporate-debt surge has added about 0.3 percentage point to the 10-year Treasury yield this year. With AI infrastructure spending expected to remain massive and much of it likely to be financed with debt, longer-term rates may stay elevated even if policymakers try to reduce Treasury supply or otherwise ease pressure on yields.
The AI earnings headwind and accounting headache that’s set to intensify 🌬️ by TKer
The enormous AI buildout is already boosting earnings across semiconductors, hardware, industrials, and utilities, but much of the hyperscalers’ own spending has not yet fully hit their income statements because those investments are depreciated over several years. That means the real test is not how much cash they are spending today, but whether future AI revenue and operating efficiency are strong enough to absorb a growing depreciation expense that Goldman Sachs estimates could cut S&P 500 earnings growth by 5 percentage points in 2027 and offset the earnings boost from continued capex by 2028. For investors, the key is to understand that today’s strong profits do not by themselves prove the AI spending will earn attractive returns, and that depreciation is likely to become a much bigger part of the earnings story over the next few years.
An RSM model: What 5%, 5.5% and 6% yields mean for the economy by RSM
The 10-year Treasury yield is expected to move decisively above 5% as inflation, large federal deficits, and heavy demand for capital—including the AI buildout—keep upward pressure on long-term rates. If yields rise to 5.5%–6%, the modeling points to materially slower 2027 growth, weaker hiring, higher unemployment, and mortgage rates potentially peaking around 7.3%. The broader risk is a “stagflation lite” environment in which growth slows but inflation remains too high, forcing the Fed to raise short-term rates more than currently projected.
Fall Benefits Season: Making Retirement Readiness Part of Open Enrollment by Savant Wealth
Open enrollment is a good time for employees to review more than health benefits and make sure their retirement plan choices still fit their situation, including contribution rates, beneficiaries, investments, and Roth versus pretax contributions. Employees age 50 and older should also understand whether the new 2026 Roth catch-up rules apply to them, particularly if their prior-year FICA wages from the employer exceed the applicable threshold. A few simple year-end check-ins around savings rates, catch-up eligibility, beneficiaries, and available plan resources can help employees stay on track for retirement.
Book Recommendation
Never: A Novel by Ken Follett
The new must-read epic from master storyteller Ken Follett: more than a thriller, it’s an action-packed, globe-spanning drama set in the present day.
