The Dunham Quarterly Pulse: Q3–2026

In the third quarter of 2026, the Federal Reserve raised rates again, long-term yields reached levels last seen before the 2008 financial crisis, and the relationship between equity valuations and fixed income yields moved to a point not seen in over a decade.

With that backdrop, equity markets generally held up.

The S&P 500 returned 2.30%. The Nasdaq returned 2.61%. And the MSCI ACWI Ex US returned 0.48% - all while the 10-year Treasury yield ended the quarter at 5.28%, and the Bloomberg U.S. Aggregate returned -3.51%.

Q4 earnings now carry more weight than at any point in the current cycle.

Five developments helped mold this quarter:

• The Fed raised rates to 3.75%–4.00% on September 16, unanimously - hiking into an inflation problem driven by energy costs rising 16.3% year over year. Inflation has now run above the Fed's 2% target for 66 straight months.
  
  
• A dollar in August 2026 buys 23% less than it did in January 2020. Prices have risen 29.9% cumulatively since then. The Fed can slow further increases – but it can’t reverse six years of compounding purchasing power destruction.
  
  
• South Korea's KOSPI - the world's best-performing major market through mid-2026 - fell 22% in a single month (July), wiping over $2 trillion in two consecutive sessions. The same AI and semiconductor concentration that drove it up drove it down.
  
  
• Global M2 – liquid money supply - at constant exchange rates is running well below its historical average. China accounts for over half of global M2 - and its 3-month monetary growth rate sits deeply below trend, the primary drag on the global reading.
  
  
• The Bank of Japan raised its policy rate to 1.25% on September 18 - a 31-year high — and the yen barely moved. Japan spent approximately ¥27 trillion (~$170 billion) defending the currency through September, with the U.S. stepping in to coordinate on exchange-rate policy - a level of bilateral intervention not seen in decades. The rate gap between the U.S. and Japan remains roughly 250 to 275 basis points. The spending and the coordination both reflect how serious the pressure has become. But neither has resolved it.

Inside this quarter's Pulse:

• Why the Fed hiked into a supply shock - and what the path forward may look like with rates this high and debt this large
  
  
• What ~30% in cumulative price increases since 2020 means for consumer demand, wages, and political tolerance for the next inflation burst
  
  
• Why the earnings yield on the S&P 500 now sits below the 10-year Treasury - and what that implies for markets
  
  
• What the KOSPI collapse reveals about concentration risk in the world's most crowded trades