US equities posted modest third-quarter gains in 2026, but the headline performance concealed a sharp rotation among stock funds. The Morningstar US Market Index rose 1.7%, taking its 2026 gain to 12.6%, while the Morningstar Global Markets ex-US Index advanced 0.7% for a 13.9% year-to-date return. The quarter unfolded against geopolitical tensions, multidecade-high US Treasury yields and growing concerns about artificial intelligence safety. The AI infrastructure rally that drove technology stocks during the first half lost momentum. The Morningstar US Semiconductor Index fell 4% in July and August, while the Morningstar US Software Capped Index gained 25%; in September, semiconductors rose 7% and software fell 2%. Software nevertheless finished the quarter ahead, benefiting funds including Oakmark Select, Hotchkis & Wiley Opportunities and Brown Capital Management Small Company. Oakmark Select gained 12%, helped by Salesforce and Paycom, while Brown Capital’s software exposure supported a 9% return even as its average small-growth peer fell 10%. The reversal hurt concentrated technology funds. Tortoise AI Infrastructure ETF lost 16% during the quarter but remained up 58% for the year through September; iShares A.I. Innovation and Tech Active ETF and AB Disruptors ETF each fell 11%. Large-cap funds held up better than small-cap funds as interest rates rose. All US large-cap categories posted small gains, while small-cap categories declined between 5% and 10%, with small-growth funds down 10%. Lord Abbett Developing Growth, Invesco Small Cap Growth and AB Small Cap Growth fell 17%, 16% and 14%, respectively, as momentum stocks and data-center construction companies gave back part of their earlier gains. Sterling Infrastructure fell 41% and Argan declined 53% in the quarter. Outside technology, energy funds gained 6% as geopolitical tensions lifted oil prices, healthcare funds rose 4%, and foreign small/mid-value funds gained 6%. Fidelity Advisor Energy rose 15% and Fidelity Select Health Care returned 9%. Emerging markets weakened after a strong second quarter: the Morningstar Emerging Markets Index fell 0.8%, while the developed-markets ex-US index rose 1.3%. Pacific/Asia ex-Japan funds fell 2.5% after gaining 23% in the second quarter, and diversified emerging-markets funds declined 1.3% after a 21% second-quarter advance. AMG Veritas Asia Pacific fell 12%, while American Century Emerging Markets declined 7%.