Key Takeaways
- • U.S. Bank's Asset Management Group projects S&P 500 earnings of approximately $363 in 2026 and $417 in 2027, growth of 32% and 15%, respectively, as of September 30.
- • U.S. consumer prices rose 3.4% year over year in August, driven largely by energy costs tied to the U.S.-Iran conflict, prompting the Federal Reserve and other major central banks to raise rates.
- • The 10-year Treasury yield rose from 4.5% to 5.0% in the third quarter, while corporate bond yields range from 5.7% to 7.6% depending on credit quality.
- • Analysts expect large U.S. companies to increase capital spending by approximately 41% over the next 12 months, with AI-related investment extending into data centers, power systems and construction.
- • U.S. Bank advises optimism with discipline, favoring broad equity diversification, higher-yielding bonds, infrastructure and selective private market exposure, while flagging midterm elections and energy risk as key Q4 2026 tests.
Summary
U.S. Bank's Asset Management Group outlined its Q4 2026 investment outlook, describing a U.S. economy that remains durable despite higher energy and financing costs. Consumer spending rose 5% to 9% from a year earlier in recent months, employers added an average of 80,000 jobs per month through August, and personal income rose 4.3% year over year in July. Analysts expect large U.S. companies to increase capital spending by roughly 41% over the next 12 months, much of it tied to artificial intelligence and extending to data centers, power systems, construction and equipment.
The firm identifies inflation and interest rates as the central risks. U.S. consumer prices rose 3.4% from a year earlier in August, largely due to energy costs linked to the U.S.-Iran conflict, which has disrupted energy and transportation flows without a reliable normalization timeline. The Federal Reserve and other major central banks have shifted from anticipated rate cuts toward actual and expected increases. U.S. midterm elections may also shift expectations for taxes, spending, regulation and trade.
On equities, U.S. Bank projects S&P 500 earnings of approximately $363 in 2026 and $417 in 2027, and notes that strong 2026 earnings growth helps explain this year's gains. The firm cautions that large-cap U.S. stock prices sit above historical averages relative to expected earnings. It favors AI beneficiaries with visible demand and credible paths to profits, and forecasts 16% earnings growth for foreign developed companies through the remainder of 2026, above a 10-year average of 7%.
In fixed income, the 10-year Treasury yield rose from 4.5% to 5.0% in the third quarter. Corporate bond yields range from 5.7% to 7.6%, and municipal bonds offer after-tax-equivalent yields near 10% in some cases for top-bracket investors. U.S. Bank also highlights specialty income sources, including non-agency mortgages, reinsurance yielding above 11%, and floating-rate senior loan pools. Publicly traded REITs yield about 5.7%, close to historical averages, though higher rates pressure the sector.
The firm identifies inflation and interest rates as the central risks. U.S. consumer prices rose 3.4% from a year earlier in August, largely due to energy costs linked to the U.S.-Iran conflict, which has disrupted energy and transportation flows without a reliable normalization timeline. The Federal Reserve and other major central banks have shifted from anticipated rate cuts toward actual and expected increases. U.S. midterm elections may also shift expectations for taxes, spending, regulation and trade.
On equities, U.S. Bank projects S&P 500 earnings of approximately $363 in 2026 and $417 in 2027, and notes that strong 2026 earnings growth helps explain this year's gains. The firm cautions that large-cap U.S. stock prices sit above historical averages relative to expected earnings. It favors AI beneficiaries with visible demand and credible paths to profits, and forecasts 16% earnings growth for foreign developed companies through the remainder of 2026, above a 10-year average of 7%.
In fixed income, the 10-year Treasury yield rose from 4.5% to 5.0% in the third quarter. Corporate bond yields range from 5.7% to 7.6%, and municipal bonds offer after-tax-equivalent yields near 10% in some cases for top-bracket investors. U.S. Bank also highlights specialty income sources, including non-agency mortgages, reinsurance yielding above 11%, and floating-rate senior loan pools. Publicly traded REITs yield about 5.7%, close to historical averages, though higher rates pressure the sector.
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