Rising Yields, Midterms Test US Stocks’ Strength

U.S. stocks enter the fourth quarter near record highs after rising roughly 12% this year, but their traditionally strong year-end stretch faces several headwinds. Rising bond yields could draw investors toward fixed-income assets and weigh on stock valuations, while the market’s reliance on substantial AI spending leaves it vulnerable if investment or expected returns falter. Corporate earnings and a pivotal Federal Reserve meeting will test whether companies can sustain growth and profitability, and the November midterm elections add uncertainty over the direction of policy. Historically, the S&P 500 has gained in most fourth quarters, with midterm-year fourth quarters often stronger, though analysts warn that this year’s combination of risks could prompt a pullback.