Author: Megan Horneman | Chief Investment Officer
Key Takeaways:
- October tests investor sentiment on many fronts.
- Capex spending supports economic growth.
- Investors shift away from tech stocks.
- Municipals rebound after worst quarter in decades.
- Gold loses its luster as tech sell off causes forced selling.
October Market Recap – AI Doubts Rattle Tech While Bonds Rebound
The month of October pressured sentiment from several different angles. Geopolitical tensions pushed oil above $100/ bbl. The U.S. added a meager 29K jobs. Inflation was driven higher by two different forces. Investors lost patience with AI leaders whose spending has yet to pay off in earnings. In contrast, bond investors cheered as Treasuries posted their best month since 2023. In this Insights, we offer an overview of October from an economic and asset class perspective.
Capex spending supports growth:
The first reading on 3Q26 GDP showed spending on AI remains a major driver of growth. Spending on information processing equipment and software now makes up a record amount of GDP (7.5%). The consumer also boosted growth by posting the best back to back quarterly gain in roughly a year.
Inflation moving away from Fed:
Inflation data continued to trend higher. Core consumer prices are growing 2.6% (YoY), the PCE Core is up 3.1% (YoY) and core producer prices are rising 5.0% (YoY).
Fed stays on hold:
The Fed kept rates unchanged at their meeting despite two voters wanting a hike.
Housing frozen:
High mortgage rates and elevated prices have frozen the housing market. The Pending Home Sales Index is at a record low and sentiment is at the lowest level since 2012.
Global Equities: Tech Selloff.
The MSCI AC World Index posted its first back to back monthly decline since the tariff sell off in Feb-Mar 2025. Several indices hit record highs during the month before a late month sell off (e.g., S&P 500, Russell 1000 Growth, Nasdaq).
Tech jitters:
Earnings season kicked off and fears grew about AI spending and its ability to pay off. The Nasdaq and Russell 1000 Growth fell the most since March 2025. In addition, emerging market equities tied to AI dropped sharply (e.g., Korea, Taiwan).
Wide dispersion:
The S&P 500 Equal Cap Weighted Index outperformed the Market Cap Weighted Index by the most since 2009. In addition, the MSCI EAFE outperformed the Emerging Market Index by the most since 2022.
Fixed Income: Bonds Rebound.
The Bloomberg Aggregate Index posted its best monthly gain since December 2023 driven by the flight to safety away from equities.
Municipals lead rally:
Municipal bonds posted their best monthly gain since November 2023. The worst quarter in decades (3Q) drew investors with attractive yields. In addition, issuance slowed.
Leverage loans fall:
Leverage loans were the only sector within fixed income that declined for the month. Credit and refinancing risks hampered loans in October.
Commodities: Energy leads as attacks accelerate.
The Bloomberg Commodity Index was flat as gains in energy were overshadowed by losses in nearly every other sector.
Energy:
Crude oil rose for the fourth consecutive month as Saudi Arabia supplies were targeted.
Gold:
Gold prices fell to a one year low on future rate hikes and selling during the tech sell off.
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Your Economic and Market Detailed Recaps
- Consumer confidence surprisingly jumps.
- Fed keeps rates unchanged while inflation rises.
- Economy grows faster than expected.
- Global equities drop as tech self-off continues.
- Investors rotate from tech stocks to bonds for safety.
- Commodities fall led by gold and grains.
Weekly Economic Recap — Fed Stays on Hold but Inflation Moves Higher
The preliminary reading on September durable goods orders showed orders rose at the fastest pace in five months (+1.8% MoM) driven by nondefense aircraft orders. When you exclude defense and aircraft the gain was lower (0.5% MoM). The gains outside of defense and aircraft were seen in computers and electronics and machinery.
Consumer confidence as measured by the Conference Board rose at the fastest pace in two years in October. Consumers are more confident about both their present situation and future expectations. They are also happier about the labor market with those viewing jobs as plentiful rising to a six month high. They also became more confident about their incomes over the next six months.
The Federal Reserve met and as expected left interest rates unchanged at 3.75-4.00%. The decision was 10-2 with two officials voting in favor of raising interest rates. Chairman Kevin Warsh said “inflation is too high,” but that “economic growth has strengthened.” In addition, they will adjust the schedule next year where they will release monetary policy in only seven of the eight meetings.
The Fed’s preferred inflation indicator (PCE Core YoY) rose 3.1% in September while personal spending exceeded income. As a result, the savings rate fell to the lowest level since 2022.
The advanced reading on 3Q26 GDP showed the economy grew 3.4%, the fastest in a year. It was led by the consumer (specifically in services) and capex spending. Nonresidential fixed investment rose the most since 2020. As a result, spending on information processing equipment and software made up a record amount of GDP (7.5%).
Weekly Market Recap — Global Equities Drop as Tech Stocks Sell Off
Equities:
The MSCI AC World Index declined for the third consecutive week as renewed fears about tech spending and its ability to pay off caused a sharp sell off in tech stocks. The NASDAQ, Russell 1000 Growth and MSCI Emerging Market Index led the global decline. The MSCI Europe ex UK was the best performing Index due to its lesser exposure to tech and the ECB holding rates steady. Within the U.S., small and midcap stocks rallied due to solid U.S. economic data, the decline in yields and rotation from tech.
Fixed Income:
The Bloomberg Aggregate Index rallied for the fourth consecutive week as investors rotated out of tech stocks and into the safety of bonds. The gains were led by high quality fixed income (e.g., Treasuries) and municipal bonds. However, every major fixed income sector rose for the week.
Commodities/FX:
The Bloomberg Commodity Index declined for the second consecutive week led by precious metals and grains. Gold prices dropped to their lowest level in a year as the Fed keeps rates unchanged and investors sold gold along with the tech sell off. Wheat also fell sharply on hopes for additional supply from Russia.
Frequently Asked Questions:
Why did tech stocks sell off in October 2026?
Tech stocks sold off in October 2026 as earnings season raised doubts about whether heavy AI spending will pay off in profits. The tech stock selloff hit the Nasdaq and Russell 1000 Growth indexes hardest and spread to AI-linked emerging markets such as Korea and Taiwan, while markets with less tech exposure held up better.
How much is AI spending contributing to US economic growth?
AI spending remains a major driver of US growth. In the advance reading of third quarter 2026 GDP, spending on information processing equipment and software reached a record 7.5% of GDP. The economy grew 3.4%, its fastest pace in a year, led by consumer spending on services and business capital spending.
Why did the Fed keep interest rates unchanged in October 2026?
The Fed left rates unchanged at 3.75% to 4.00% at its October meeting. Chairman Kevin Warsh said inflation is too high but that economic growth has strengthened. The vote was 10 to 2, with two officials favoring a hike. Core PCE inflation, the Fed’s preferred gauge, rose 3.1% year over year in September.
Why are investors moving from tech stocks into bonds?
Many investors rotated out of tech stocks and into bonds as fears grew about AI spending and its ability to pay off. This flight to safety lifted the Bloomberg Aggregate Index for four straight weeks, led by high-quality bonds such as Treasuries and municipal bonds. Small and midcap US stocks also gained from the rotation.
Why did gold prices fall in October 2026?
Gold fell to its lowest level in a year as investors weighed the possibility of future rate hikes and sold gold alongside the tech selloff. With the Fed holding rates steady and inflation moving higher, gold lost some of its appeal. Precious metals led the Bloomberg Commodity Index to a second straight weekly decline.
