Third-Quarter Markets: Energy, Inflation, and Rates

The U.S. economy showed resilience during the third quarter, though the picture was not entirely rosy. Third-quarter economic developments reflected a combination of labor market conditions, consumer spending trends, and elevated energy prices. Geopolitical tensions also contributed to uncertainty surrounding energy supplies and inflation. In September, the Federal Reserve raised rates for the first time since 2023.

Stocks ended the quarter modestly higher, even as the 10-year Treasury yield reached its highest level since 2007. Higher yields raised borrowing costs and tested the lofty valuations behind the AI rally. Below, we review how energy prices, inflation, and Federal Reserve policy shaped the quarter.

Major U.S. Stock Indexes

• The S&P 500 climbed 2.03%.
• The Nasdaq 100 edged up 0.44%.
• The Dow Jones Industrial Average slid 2.70%.

Index performance is provided for illustrative purposes only. Indexes are unmanaged, do not reflect investment management fees or expenses, and cannot be invested in directly. Past performance is not indicative of future results.

Diesel Prices and the Economy

The U.S.-Iran conflict made diesel the quarter’s most telling price. Diesel powers the trucks, trains, ships, and farm equipment that keep the economy supplied, and late in the quarter, it topped $6 a gallon nationally for the first time. The increase reflected more than expensive crude. Ukrainian strikes on Russian refineries, Iranian attacks on tankers, and Moscow’s export ban sharply reduced global diesel supply.

Unlike gasoline, diesel costs are built into nearly everything consumers buy. Businesses can absorb higher fuel bills only for so long before passing them along through freight charges, food prices, and delivery fees. Consumers continued spending, but they grew more anxious about prices, and the diesel increase may help explain why. Higher transportation and distribution costs may eventually be reflected in consumer prices, although the timing and magnitude of these effects vary across industries.

Energy Costs Kept Inflation Elevated

Energy costs kept inflation from cooling enough to satisfy the Federal Reserve under Chair Kevin Warsh. Setting food and energy aside, the picture appeared steadier. Underlying price increases held roughly level for months, a sign that the broader economy was not overheating. But with demand holding up and fuel costs continuing to rise, overall inflation remained well above the Fed’s 2% goal. By late summer, policymakers concluded that waiting carried more risk than acting.

The Fed’s September Rate Increase

At its September meeting, the Federal Reserve raised rates for the first time in three years, moving the benchmark federal funds rate to 3.75%–4%. The increase itself was modest, but the signal behind it drew attention. Policymakers indicated that another increase could come before year-end and that rates would likely remain high through 2027. Bond investors responded quickly, pushing long-term Treasury yields to levels not seen since 2007 and lifting borrowing costs across the economy.

For savers, this was welcome news. Money market funds, CDs, and short-term bonds paid noticeably more. Borrowers faced the opposite outcome, as mortgages and car loans became more costly.

Events to Watch in the Fourth Quarter

The Federal Reserve’s late-October and early-December meetings are among the quarter’s major events. Monthly data releases will also continue to offer insight into how inflation affects consumers.

The third quarter showed that a strong economy does not always make for an easy market. At Beyond Tangible Wealth, we will continue following these developments. If you would like to review your portfolio, revisit your goals, or talk through a question, consult our financial team for personalized guidance and support.