What We’re Watching on Iran & Stocks Generally

The big things you need to know: First, 3Q26 reporting season is off to a slightly soft start on the stats, with company commentary generally still highlighting resilience in the economy and consumers and tailwinds from AI, with some caveats, while giving investors plenty to think about in terms of risks that may lie ahead. Second, recurring topics in conversations last week with US investors included midterms, earnings, and positioning. Overall, investors came across as neutral with a dose of nervousness and a bit more short-term focused than usual. Third, other things that jump out in our other updates include the broad pivot we’re seeing in a number of key positioning trades and the recent widening in high yield credit spreads, which is a new potential point of concern for Small Caps.

The big things you need to know: First, we enter 3Q26 reporting season seeing risks in both directions. Second, the investors we met with in Canada last week were best described as cautiously optimistic, with earnings, midterms, and confusion over recent resiliency in the equity market all top of mind. Third, other things that jump out this week include the recent surge in US performance relative to non-US which may be on borrowed time, the bounce back in investor sentiment, and a few important shifts in sector valuations ahead of reporting season.

The big things you need to know: First, our analysts are moderately constructive across the globe, though we did detect a bit more optimism outside of the US. Second, Energy, Health Care, and Technology stand out at the global sector level for capturing some of the most optimistic views on all of our main questions. Third, within the US, muted midterm views remain in place at the broader stock market level, but our analysts did highlight a few potential sector trades in different scenarios. Fourth, in terms of key risks, our US analysts expressed more concern about the potential for higher interest rates than the potential weakening of the AI theme.

The big things you need to know: First, Friday’s weaker than expected jobs report, which was still viewed as healthy by our economists, left us feeling incrementally better about Small Cap. Second, other things that jump out in our updates this week include the stall in stock market optimism among consumers in the latest Conference Board survey, recent deterioration in our earnings yield gap model, low layoff levels in the Challenger report, the stall in Democratic sweep expectations in midterm betting markets, and the expensive valuations we continue to see in Financials, Industrials, and Utilities.

The big things you need to know: First, we reviewed the drawdowns in the S&P 500 of 11% or more dating back to 1956, an exercise that helps to clarify why US equities have been resilient recently (in particular, strong earnings and capex dynamics). Second, other things that jump out in our updates include the link between crude oil and 10-year yields, the renewed leadership of the US and mega cap growth trades, the lack of movement in consensus EPS forecasts for most sectors (ex Energy, Mag 7, and Tech) in September, the slight softening of C suite confidence we saw in the latest Duke CFO survey, and the surge in expectations for a Democratic sweep in betting markets.