U.S. and global markets continued to advance during the third quarter, though gains slowed compared with earlier in the year. Investors navigated a challenging environment marked by rising interest rates, geopolitical tensions, and questions surrounding the future pace of AI-driven growth.
The S&P 500 gained 2.3%, while the Nasdaq rose 2.6%. Technology stocks remained a key source of market strength, fueled by enthusiasm for artificial intelligence. However, AI-related shares pulled back later in the quarter as investors reassessed growth expectations. The public debut of SpaceX also attracted considerable attention but underscored the risks often associated with newly public companies.
International markets produced mixed results. Developed international stocks gained 0.9%, while emerging markets declined 0.4% during the quarter. Despite that short-term weakness, emerging markets remained among the strongest-performing regions for the year, led by Taiwan and South Korea. Their semiconductor industries appeared to benefit from growing demand for chips used in AI technologies, demonstrating that market leadership can emerge from unexpected regions and sectors.
Meanwhile, oil prices rose as tensions in the Middle East increased, creating additional uncertainty for investors. However, the U.S. economy is less dependent on oil than in previous decades and is now a net exporter, which may help reduce the impact of energy-price shocks.
The Federal Reserve raised interest rates for the first time since 2023 in response to persistent inflation. Higher rates weighed on bond markets, sending the 10-year Treasury yield above 5%, its highest level in more than two decades.
Despite market volatility, the quarter illusrated a timeless investing principle: maintaining a diversified portfolio and a long-term perspective can help investors navigate changing economic and market conditions.
(We highly suggest you watch Mark Hebner's breakdown of the quarter two market review. As always if you have any questions related to some of the new allocations please reach out to your wealth advisor.)
Domestic Equities
During the third quarter of 2026, performance among IFA's domestic equity indexes was mixed. The U.S. Large Growth Index (LG) led all domestic indexes with a 4.18% return, followed by the U.S. Large Company High Profitability Index (LH) at 3.13% and the U.S. Large Company Index (LC) at 2.59%. The U.S. Large Value Index (LV), U.S. Core Equity 2 (UCE), and U.S. Large Growth Index (LG) also posted positive returns, while the U.S. Mid Cap Index (MD) and the three small-cap indexes finished the quarter in negative territory. The U.S. Small Company Index (SC) was the weakest performer for the quarter, declining 5.15%, closely followed by the U.S. Small Growth Index (SG) at -5.01%.
Despite the uneven third-quarter results, all nine of IFA's domestic equity indexes remained firmly positive year-to-date through September 30, 2026. The U.S. Large Value Index (LV) led with a 15.56% return, followed by the U.S. Small Cap Value Index (SV) at 14.28%. The remaining indexes produced year-to-date gains ranging from 10.20% to 12.63%, demonstrating broad strength across domestic equity asset classes during the first nine months of the year.
International Equities
International equity markets delivered broadly positive results during the third quarter of 2026, with four of the five IFA international indexes posting gains. The IFA International Small Cap Value (ISV) Index led the group with a 7.55% return, followed by the IFA International Value (IV) Index at 5.57%. The IFA International Small Company (IS) Index gained 3.95%, while the IFA International Core Equity (ICE) Index returned 2.66%. The lone exception was the IFA International Large Company High Profitability (IHP) Index, which declined 1.00% during the quarter.
Despite the mixed third-quarter results, all five international equity indexes remained solidly positive year-to-date through September 30, 2026. The IFA International Value (IV) Index led with a 16.98% return, followed by the IFA International Small Cap Value (ISV) Index at 13.67%. The IFA International Core Equity (ICE) Index returned 11.54%, while the IFA International Small Company (IS) Index gained 10.59%. The IFA International Large Company High Profitability (IHP) Index rounded out the group with a 9.09% year-to-date return.
Emerging Markets Equities
Performance among IFA's emerging markets equity indexes was mixed during the third quarter of 2026. The IFA Emerging Markets Value Index (EMV) led the group with a 4.71% return, followed by the IFA Emerging Markets Small Cap Index (EMS) at 2.17%. The IFA Emerging Markets Core 2 Index (EMC2) posted a modest gain of 0.08%, while the IFA Emerging Markets Index (EM) was nearly flat at -0.06%. The IFA Emerging Markets High Profitability Index (EMHP) was the only index to experience a more notable decline, finishing the quarter down 0.85%.
Despite the muted third-quarter performance, emerging markets remained one of the strongest equity asset classes year-to-date through September 30, 2026. The IFA Emerging Markets High Profitability Index (EMHP) led all emerging markets indexes with a 23.81% return, closely followed by the IFA Emerging Markets Value Index (EMV) at 23.57%. The IFA Emerging Markets Core 2 Index (EMC2) returned 20.84%, while the IFA Emerging Markets Index (EM) gained 20.40%. The IFA Emerging Markets Small Cap Index (EMS) rounded out the group with a solid 10.14% year-to-date return, leaving all five emerging markets indexes firmly positive for the first nine months of the year.
Real Estate Equities
Global real estate securities faced headwinds during the third quarter of 2026, with the IFA Global REIT Index declining 5.77%. Despite the negative quarterly result, the asset class remained positive for the year, reflecting strong gains earlier in 2026.
Through September 30, 2026, the IFA Global REIT Index returned 10.68% year-to-date. While third-quarter performance reduced some of the gains accumulated during the first half of the year, global real estate equities remained firmly in positive territory after nine months, delivering a double-digit return for investors.
Fixed-Income
Fixed-income markets experienced a challenging third quarter, with six of IFA's eight fixed-income benchmarks posting negative returns. The IFA One-Year Fixed Income Index led the group with a 0.50% gain, followed by the IFA Short Term Government Index at 0.25%. The IFA Two-Year Global Fixed Income Index was nearly unchanged, declining just 0.01%. Among the weakest performers, the IFA Core Fixed Income Index fell 3.85%, while the IFA Global Credit Index and IFA Global Core Ex-U.S. Fixed Income Index declined 3.50% and 2.90%, respectively.
Through September 30, 2026, year-to-date returns were mixed across fixed-income asset classes. The IFA One-Year Fixed Income Index led with a 1.68% return, followed by the IFA Two-Year Global Fixed Income Index at 1.08% and the IFA Short Term Government Index at 0.33%. The remaining five indexes posted negative year-to-date returns, ranging from -0.22% for the IFA Five-Year Global Fixed Income Index to -3.36% for the IFA Core Fixed Income Index. Despite the difficult third quarter, shorter-duration fixed-income strategies remained positive for the year, demonstrating greater resilience in a rising-rate environment.
IFA Index Portfolios
The third quarter of 2026 produced mixed results across IFA Index Portfolios, with returns generally declining as bond allocations increased. IFA Index Portfolio 100, the firm's all-equity portfolio, led the group with a 0.96% return, followed by IFA Index Portfolio 90 at 0.59% and IFA Index Portfolio 80 at 0.21%. Portfolios with larger fixed-income allocations posted negative quarterly returns, ranging from -0.17% for IFA Index Portfolio 70 to -2.65% for IFA Index Portfolio 10, reflecting the challenging environment for many fixed-income asset classes during the quarter.
Despite the modest third-quarter results, all but one IFA Index Portfolio remained positive year-to-date through September 30, 2026. IFA Index Portfolio 100 led with a 12.45% return, followed by IFA Index Portfolio 90 at 10.96% and IFA Index Portfolio 80 at 9.46%. Returns gradually decreased along the risk spectrum, with IFA Index Portfolio 20 gaining 0.50% year-to-date. IFA Index Portfolio 10 was the only portfolio in negative territory, returning -1.00%. All hypothetical porfolio returns shown are net of IFA's maximum annual 0.90% advisory fee through September 30, 2026.
Each quarter, we monitor our recommended funds for clients. As part of that process, we've developed a rating system. For a summary of those results, please feel free to check IFA's latest Performance Monitoring Report (PMR).
IFA encourages both novice and experienced investors to discuss their financial situation and investment goals with an IFA wealth advisor, tailoring strategies to their personal risk capacity and long-term objectives. Besides offering an online Risk Capacity Survey, we provide to each client a complimentary and holistic financial plan.
The wealth of IFA's educational materials are available for Apple iOS and Android devices via the IFA App. This free App is available to download from both the Apple App Store and the Google Play Store for Android.
Prior performance is not indicative of future results. Investors should review complete performance data over time before making investment decisions.
Footnotes
- Dimensional, Quarterly Review: Cautious Investors Tap the Brakes, October, 2026
Disclosure:
Performance results for actual clients investing in accordance with the IFA Index Portfolio Models may differ from backtested data due to factors such as fund implementation, market conditions, cash flows, mutual fund allocations, index changes, rebalancing, deviation from advice, retained securities, tax strategies, fees, and timing of fee deductions.
Diversification is a prudent investment approach, but it does not assure a profit or protect against loss in declining markets, nor does it eliminate all investment risks. Performance data presented is for illustrative purposes, and readers are encouraged to consider longer-term performance horizons, such as one-year, five-year, and ten-year periods, when making investment decisions. Comprehensive performance data, including net-of-fee results for these periods and additional disclosures, is available upon request.
This information is not an offer, solicitation, or recommendation for any security, product, or service. No investment strategy guarantees success, and all investing carries risks, including the potential loss of principal. Performance results may include both live and hypothetical data, which do not represent actual client portfolios and should not be interpreted as indicative of future results.
Hypothetical performance relies on assumptions, including fixed market conditions, periodic rebalancing, and historical data, and does not account for real-world factors such as transaction costs, tax implications, behavioral tendencies, or cash flows, which can affect results. References to diversification, portfolio construction, or market trends are intended for educational purposes and should not be considered prescriptive or guaranteed strategies for success.
The data provided is based on information believed to be accurate as of the date of publication but may change as market conditions evolve. Investors are encouraged to consult with a qualified advisor to assess personal financial goals and risk capacity. Additional information is available by reviewing IFA's ADV Brochure at https://www.adviserinfo.sec.gov/ or visiting www.ifa.com."
