Markets Brief: Utility Stock Dividends vs. Bond Yields, Citadel’s Bullish Turn, and a Cooling IPO Market

Markets head into the first full week of the fourth quarter with a boost from a softer-than-expected jobs report, which cooled expectations for Federal Reserve interest rate increases in the final months of 2026. The coming week will be quieter for economic data. But news will pick up significantly next week, with the release of the September Consumer Price Index report and the start of third-quarter earnings.

In this week’s Markets Brief:

• Utility stocks were an early non-tech winner from the artificial intelligence trade. But rising rates have tripped the sector. What’s next? Do Morningstar analysts think utility stocks are a buy yet?
• The bull market for stocks slowed in the third quarter. But Citadel’s head of equity strategy says September was simply a reset, and he’s constructive on the fourth-quarter outlook.
• The IPO outlook is dominated by what Anthropic’s expected filing will show. But Oura’s last-minute decision to postpone its offering has chilled the space.

Utilities Stocks Lose Steam

After a two-year surge fueled largely by the buildout of AI infrastructure, utility stocks are down 7% since February, compared with a 10% return for the broader market. In a new report, Morningstar senior equity analysts Travis Miller and Andrew Bischof say high interest rates and inflation are beginning to bite. “Without a huge market reversal in the fourth quarter, utilities’ two-year market-beating streak could be over,” they write.

It’s a very different landscape from a year ago, when investors appeared to be treating utilities like growth stocks rather than defensive, income-driven plays. Investors piled into utility stocks to ride the AI wave, betting heavily on future demand and earnings growth and upending a historical pattern of underperformance during times of rising interest rates. Dividend yields in the sector fell to historic lows. “Utilities investors mostly ignored the steady rise in interest rates during the last two years,” the analysts wrote.

The utility sector’s dividend yield is still less than 3%, but Treasury yields have risen to multidecade highs above 5%—a more attractive proposition for income-seeking investors. The analysts say that creates downside risk for these stocks, though projected earnings growth of 6%-8% over the next few years could help alleviate some of the downward pressure from rising rates.

After the pullback, Miller and Bischof consider the group to be fairly valued rather than overvalued, as it was a year ago. Some individual names are even looking cheap. Top Morningstar picks include Alliant Energy LNT, American Electric Power AEP, DTE Energy DTE, and Portland General Electric POR.

Citadel’s Constructive Q4 Stock Market Outlook

The stock market’s rally may have run out of steam in the third quarter, but Scott Rudner, head of equity and equity derivatives strategy at Citadel, thinks the pause should refresh things. “September delivered much of the reset we wanted to see. Positioning and leverage came down. Retail activity cooled … Valuations compressed. The market enters Q4 from a cleaner starting point,” he wrote last week.

“There is still plenty of stress beneath the surface,” Rudner wrote, and “we are not expecting a straight line higher. October could still bring volatility and a better entry point.”

Here’s some of Rudner’s reasoning behind a constructive fourth-quarter outlook: “Positioning is cleaner, valuations are lower, earnings are returning, and several of the market’s largest buyers have considerably more capacity to participate. S&P 500 Q3 EPS estimates have increased 2.2% over the past two months, versus a median 1.9% decline over the same pre-earnings window since 2000. Only a quarter of earnings seasons have seen estimates rise at all. This is also the fifth consecutive quarter of pre-season upgrades. The story in 2026 has not been a low bar [for earnings]. Expectations have moved higher, and companies have continued to clear them by a wide margin.”

Is the IPO Market Deteriorating or Normalizing?

There may be lots of hoopla around mega-IPOs like SpaceX SPCX and expected listings from Anthropic and OpenAI. But the IPO market has been cooling off.

After a summer boom, the IPO market had a disappointing third quarter, as AI spending concerns, decades-high bond yields, and interest rate hikes pressured stock performance. Just 32 listings—the lowest quarterly total since early 2024—raised about $35.4 billion as a group, according to Renaissance Capital. But after excluding the blockbuster US listing of South Korean chipmaker SK Hynix—which had already been trading on the Korea Exchange—proceeds fall to $8.9 billion, a one-year low.

Just this past week, smart ring maker Oura postponed its $2 billion public listing. On Tuesday, the company cited “uncertainty in the IPO market,” adding it to the growing list of firms delaying their debuts as stock market risks mount. SB Energy, NScale, and Holtec—all tied to the AI data center buildout—have also reportedly pushed back their IPOs in recent weeks.

Meanwhile, frontier AI lab Anthropic was reportedly targeting October for its IPO, and it was expected to raise a record $100 billion at a $2 trillion valuation, before pushing the listing back to November. Competitor OpenAI, which was once expected to go public this year, has said it doesn’t plan to list until next year.

Renaissance analysts attributed the spate of delays to valuations. After a strong second quarter, “issuers prepped deals with price expectations that look too high for today’s choppier market,” they wrote. “Postponed IPOs may cite ‘adverse market conditions’ when the reality looks closer to normalized market conditions.” Oura chose to delay its IPO “after potential investors made clear they saw the valuation as too high,” according to a Wall Street Journal report.

But there were some positive signals, according to Renaissance. “The third quarter brought greater breadth to the IPO market, showing renewed appetite for stories beyond AI and biotech,” with more consumer and financial firms choosing to go forward with IPOs. “We’re seeing a lot of balance across the sectors and industries, which, to me, is a good sign,” says Mike Bellin, head of US IPO & Capital Markets at PwC.