Market Recap for the October 2026
Market Recap
October was a somewhat weak month for the US stock market, with the S&P 500 falling 0.87%. International stocks (Japan, UK, EU, etc.), as measured by the MSCI EAFE index, fell 0.50%. The bond market actually made a nice comeback, with the Aggregate Bond index up 2.29% in October after falling 2.61% in September.
The Importance of Staying Invested
Looking back on the year, some investors might not be feeling too great, depending on when they entered the markets. While a globally diversified all-stock portfolio has returned close to 12% from January 1 through the end of October, returns have been pretty much flat from June through October. There is an important lesson here. The stock market does not deliver returns in a smooth manner. If you had missed just April and May of this year, you’d have essentially no growth at all. Markets haven’t really gone down over the past four months; they’ve simply gone sideways. This is perfectly normal for stock markets. We know that a few months can make or break a whole year. We just can’t know ahead of time which months those will be. So if you want the returns stocks can offer, you often have to sit through flat periods.
“The stock market does not deliver returns in a smooth manner.”
“Some market commentators speculate that a major move in the war in Iran could take place after the midterm elections, but time will tell.”
Oil Prices, Inflation & The Fed
Oil prices are still high, at over $100 a barrel as of November 1, and volatile enough that the price could be very different by the time this newsletter reaches you. Some market commentators speculate that a major move in the war in Iran could take place after the midterm elections, but time will tell. This will be the key event to watch for oil prices, and therefore inflation and interest rates, between now and year-end.
Corporate Earnings & The AI Investment Cycle
The other thing to watch is earnings. Earnings growth has been spectacular this year. According to Yardeni, the consensus EPS growth rate for 2026 is 35%. To put that into perspective, the average growth rate in earnings has been closer to 8.5% over the past decade, so 35% would be huge. You can probably guess where a lot of this growth is coming from: spending on AI infrastructure, which provides a huge boost to the profits of the companies that provide that infrastructure (Nvidia, Micron, etc.). As we move into next year, the question becomes whether the companies that have spent hundreds of billions building AI infrastructure will see a good return on that investment. Many people believe AI will be a revolutionary technology but struggle to see how it’s going to be profitable enough to cover the cost of the buildout (See the chart of the month below, for more insight on how much spending as a percent of GDP is going towards the AI buildout). This year, the companies selling the equipment got paid. Next year, the companies that bought it have to show it was worth the money. That’s the thing to watch.
The commentary in this blog is for informational purposes only and should not be taken as personalized investment advice
Sources: Yardeni Research, Apollo Global Management. Earnings Outlook: Yardeni Research, YRI Earnings Outlook; AI Infrastructure Investment: Apollo Global Management, "The AI Capex Boom Is Building Twice as Fast as the Housing Boom."
