Have clients been calling with questions about their portfolios? Are they fretting over recent headlines around AI, or wondering why bond prices keep dropping? The past quarter brought some big changes including the first rate hike in three years.
As we ease into the final quarter of the year, let’s take a quick look at how the last few months shaped up and what it means for your Q4 client conversations.
Fed Rates Rose
In September, the Federal Reserve raised its target range for the federal funds rate by a quarter of a percentage point, bringing it to 3.75%–4.00%. This rise in rates marked the Fed’s first increase since 2023.
Clients may be wondering how this change in direction impacts portfolios. Higher rates put pressure on existing bond prices while creating opportunities to earn more income from newly issued bonds.
While no one, including the FOMC, can predict its next move, it’s worth having conversations with clients about how a rate hike (and future potential rate hikes) could impact their fixed-income strategy.
We recently covered this rate change in greater detail, which you can read about here.
Bond Prices Felt the Pressure
Rising yields put pressure on bond prices during the quarter, with the Bloomberg U.S. Aggregate Bond Index losing around 3.5% in Q3 (as of September 30).1 Long-term bonds are even more sensitive to interest rate changes than their short-term counterparts, as demonstrated by the 7.8% drop 10+ year Treasury bonds experienced in Q3. 2
AI Continued Reshaping the Market Conversation
Artificial intelligence and the astronomical amount of debt issuance surrounding it remained hard to escape in Q3, both in the headlines and in major market indexes. So far in 2026 alone, $229 billion has been issued in AI-buildout debt to mega-cap tech firms. That number is expected to hit $420 billion in 2027.2
Throughout Q3 and most of 2026, the Magnificent Seven (all companies with heavy AI investment) have consistently accounted for around one-third of the S&P 500’s market capitalization.3
As AI continues to dominate in both the stock and bond markets, Q4 may prompt conversations with clients about potential concentration risk.
Is AI a Bubble? How to Address Clients’ Concerns
For investors who remember the dot-com bubble burst, there may be concerns about whether AI can keep climbing or is headed for a fall. We know we’ve fielded this question from several of our clients (and our clients’ clients!) in recent months.
Here are two things we’ve been cautioning advisors to remember:
- Nobody can “time” a bubble.
- We don’t even know if AI is in a bubble.
It’s not possible to predict when or if an investment trend has gone too far, how long it will last, or what will cause it to reverse. Only time will tell.
That said, you can still have productive conversations with clients to address their concerns over a potential AI bubble burst.
Turn the focus inward, to clients’ individual portfolios. Has strong performance from a handful of tech companies caused their allocation to drift? Are they carrying more exposure to one sector than their plan originally called for? Would a downturn create more portfolio risk than the client is comfortable carrying? Are they diversified in other sectors that are less focused on AI investment? If not, it may be time to adjust and reallocate.
Reviewing a client’s portfolio is your opportunity to address their concerns in a methodical way, without introducing speculation, predictions, or emotional impulses to the equation.
What Moved the Needle for Our Advisor Clients
Clients want to know if what they’re seeing in the news changes what they should be doing with their money. Concerns over rising rates, falling bond prices, and other evolving trends put more pressure on advisors to communicate quickly.
Not only is it on you to understand and analyze what’s happening in the markets, but also to translate it into language clients understand. At the end of the day, clients count on you to connect all this info back to their individual plans. And we know that’s an immense amount of pressure to carry alone!
An outsourced investment partner helps advisors manage the communication load and more effectively support clients during moments like this. When you have the resources, portfolio context, and clear explanations at the ready, client conversations focus on reinforcing the strategy already in place (rather than speculating about what might happen next).
Looking Ahead to Q4
The Fed is set to meet once more by the end of the month, though there’s no indication yet what their next move might be.
After another quarter of uneven performance across stocks and bonds, it’s likely your clients’ portfolios look different than they did at the start of Q3. Heading into Q4, your job is to help clients understand what’s changed, how it impacted their portfolio, and what they can do to prepare for what the rest of 2026 might bring.
Sources
3 Schwab