Market Commentary – October 2026

U.S. stocks were volatile in October as investors assessed economic growth, persistent inflation, Federal Reserve policy, corporate earnings, geopolitical tensions, and potential equity overvaluation. Late-month selling and profit-taking pushed the NASDAQ and S&P 500 lower amid disappointing technology earnings and stubborn inflation. Technology and AI shares, which had led the market for much of the year, fell more sharply than the broader market, while the Russell 2000 and Dow outperformed. Most sectors finished higher, led by energy, consumer staples, and utilities. Communication services posted the largest decline, followed by information technology and industrials.

*Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark the performance of specific investments.

Volatility defined the bond market in October. At the beginning of the month, inflation concerns, expectations for Federal Reserve rate increases, and uncertainty surrounding the economic outlook drove long-term Treasury yields higher. Ten-year Treasury yields began the month at around 5.25%. However, yields gradually slid to just under 5.00% by the end of the month as investors' concerns about interest rates waned somewhat, while confidence in the economy rose, which prompted a move toward risk. However, bond yields remain well above their 2025 year-end values as inflation concerns remain prevalent.

The U.S. economy in October showed strength. The advance estimate of gross domestic product (GDP) showed the economy accelerated at a rate of 3.4%, well ahead of the second quarter's growth rate of 2.2%. This growth was encouraging as it came in the face of rising inflation, elevated interest rates, geopolitical uncertainty, and higher energy costs. Consumer spending rose 3.8%, technology-related expenditures strengthened business investment, and government expenditures increased. While the economy expanded, caution about future growth is pertinent. For instance, consumer spending, while growing, was attributable, in part, to rising prices and inflationary pressures, which could ultimately constrain household purchasing power. Business investment was focused primarily in technology and AI sectors, which face concerns about overvaluation and sustainability.

According to FactSet, more than halfway through the earnings season, the S&P 500 is reporting mixed results for Q3 relative to expectations. Overall, 60% of S&P 500 companies have reported actual results for Q3 to date. Of these companies, 82% have reported actual earnings per share above estimates, which is above the five-year average of 78% and above the 10-year average of 77%. In aggregate, companies are reporting earnings that are 1.9% above estimates, which is below the five-year average of 7.5% and lower than the 10-year average of 8.0%. If this holds true, it will mark the lowest earnings surprise percentage reported by the index since Q4 2022.

Crude oil prices were already elevated at the beginning of October and, despite some downswings, ultimately closed the month higher. Rising prices reflected sensitivity to geopolitical tensions between Iran and the U.S., along with underlying supply risks to commercial shipping through the Strait of Hormuz. The retail price of regular gasoline was $4.269 per gallon on October 26, $0.196 lower than the price a month earlier but $1.234 higher than the price a year ago. The dollar showed resilience in October, despite periods of volatility. The dollar benefited from elevated interest rates, somewhat attractive bond yields, and concerns about economic and financial conditions in other major economies. Gold experienced a notable correction in October, relinquishing much of the gains garnered throughout the year. After beginning the month at about $4,200.00 per ounce, gold prices fell to about $3,890.00 per ounce by the end of October, falling to the lowest levels in the last 12 months.

Latest Economic Report

• Employment: Job growth slowed in September as employment rose by 29,000 after increasing 133,000 (revised) in the previous month. The change in employment for July was revised down by 31,000, from +21,000 to -10,000, and the change for August was revised down by 29,000, from +162,000 to +133,000. With these revisions, employment in July and August combined was 60,000 lower than previously reported. The unemployment rate was 4.2% in September, up 0.1% from the previous month's rate but 0.2 percentage point lower than the rate from a year earlier. The number of unemployed persons in September was 7.1 million, which was 78,000 more than the total from the previous month and nearly 500,000 above the September 2025 estimate. The number of long-term unemployed (those jobless for 27 weeks or more), at 1.9 million in September, was little changed from the August estimate and accounted for 27.1% of all unemployed persons. The total number of long-term unemployed in September was 129,000 more than the total from a year earlier. The labor force participation rate, at 61.8% in September, was up 0.2 percentage point from the August figure but 0.7 percentage point below the rate from a year earlier. The employment-population ratio in September, at 59.2%, increased 0.1 percentage point from the prior month but was 0.5 percentage point below the September 2025 estimate. In September, average hourly earnings rose by $0.05, or 0.1%, to $37.81. Over the year, average hourly earnings have increased by 3.0%. The average workweek was unchanged at 34.4 hours in September.
• FOMC/interest rates: Despite acknowledging that inflation remained elevated, the Federal Open Market Committee (FOMC), by a 10-2 vote, opted to maintain the federal funds rate at 3.75%-4.00%. In support of its decision, the Committee noted that economic activity was expanding at a strong pace. While uncertainty remained elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth was strong, and capital investment was robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little. The FOMC next meets in December.
• GDP: The rate of economic expansion increased in the third quarter of 2026, with gross domestic product rising 3.4%, according to the Bureau of Economic Analysis. In the second quarter, GDP rose 2.2%. Compared to the second quarter, the increase in GDP in the third quarter reflected accelerations in private investment (4.6% to 19.4%) and government spending (-0.1% to +5.3%). Consumer spending rose 3.8% in the third quarter, the same increase as in the second quarter. Imports, which are a negative in the calculation of GDP, rose from 12.6% in the second quarter to 19.7% in the third quarter.
• Inflation/consumer spending: Inflation continues to rise. According to the latest Personal Income and Outlays report, personal income rose 0.2% in September (0.3% in August), while disposable (after-tax) personal income increased 0.2%. Personal consumption expenditures increased 0.5% in September, lower than the 0.9% rise in August. Consumer prices, as measured by the PCE price index, increased 0.5% in September, up from the August advance of 0.3%. Excluding food and energy, the PCE price index also ticked up 0.3%. From September 2025, the PCE price index rose 3.6%, higher than the increase (3.4%) for the 12 months ended in August. Excluding food and energy, the PCE price index increased 3.1% from September 2025 (3.0% for the year ended in August).
  • The Consumer Price Index advanced 0.6% in September and 3.7% over the last 12 months, a larger increase than the 3.4% increase reported for the 12 months ended in August. Gasoline rose 9.1% in September, accounting for over half of the overall monthly increase. Energy prices increased 5.2% over the month. Shelter prices rose 0.4% in September after rising 0.3% in August. Prices for food were unchanged in September. Prices less food and energy rose 0.3% in September (the same increase as in August) and 2.6% over the year following a 2.4% increase over the 12 months ended in August. Energy prices increased 20.4% for the 12 months ended September. Prices for food increased 2.5% over the last year.
  • The latest data reveals that the Producer Price Index increased 1.3% in September following a 0.5% increase in August. The September increase is the largest advance since rising 1.7% in March 2022. Producer prices climbed 6.3% over the last 12 months, the largest 12-month increase since moving up 6.4% in December 2022. In September, prices for goods rose 2.6% from the previous month, the largest increase since data was first calculated in December 2009. Prices for services increased 0.8% in September, the largest rise since advancing 0.8% in April. For the year, producer prices for goods rose 6.3%, the largest 12-month increase since moving up 6.4% in December 2022. Excluding foods and energy, prices increased 0.7% in September and 5.0% over the year. Excluding foods, energy, and trade services, producer prices moved up 0.5% in September and 5.0% since September 2025.
• Housing: Sales of existing homes increased 1.5% in September but were 2.2% below the pace from a year earlier. According to the National Association of Realtors®, August and September marked the two slowest months for home sales this year, attributable, in part, to increases in mortgage rates, which meant fewer potential buyers could qualify to purchase a home. In September, unsold inventory represented a supply of 4.8 months at the current sales pace, unchanged from the August estimate but up from 4.5 months a year ago. The median sales price in September was $417,500, down from $427,700 in August but higher than the September 2025 price of $412,300. Sales of existing single-family homes rose 2.0% in September but were down 1.9% from a year earlier. The median existing single-family home price in September was $422,700, well below the August price of $433,600 but higher than the September 2025 price of $417,600.
  • The most recent data shows sales of new single-family houses in September 2026 were 0.6% below the August rate and 5.3% under the September 2025 estimate. Inventory sat at a supply of 8.4 months, which was slightly under the August rate of 8.5 months but above the 8.2-month estimate from a year earlier. The median sales price of new houses sold in September was $400,400, 3.9% above the August price of $385,400 but 3.9% below the September 2025 price of $416,800. The average sales price of new houses sold in September was $472,800, which was 0.4% above the August price of $470,800 but 6.7% below the September 2025 price of $506,800.
  • Manufacturing: Industrial production (IP) increased 0.7% in September after edging up 0.1% in August. Manufacturing output rose 0.3% in September and 1.1% for the last 12 months. Mining moved up 0.2% last month and 2.8% since September 2025. Utilities increased 3.5% in September and 8.7% for the year. Total IP in September was 2.2% above its year-earlier level.
  • According to the latest report from the Census Bureau, new orders for durable goods in September rose 1.8% from the prior month. This followed a 0.1% August increase. Excluding transportation, new orders increased 0.5%. Excluding defense, new orders increased 2.2%. Transportation equipment, up two of the last three months, increased 4.6% in September.
  • Imports and exports: U.S. import prices increased 1.1% in September following a 0.5% rise in August. Higher prices for nonfuel imports and fuel imports drove the advance in September. Prices for U.S. imports rose 8.1% since September 2025, the largest 12-month advance since import prices increased 8.8% for the year ended July 2022. Prices for U.S. exports increased 2.2% in September after rising 1.2% the previous month. U.S. export prices increased 11.6% for the year ended September 2026, the largest 12-month rise since export prices advanced 12.9% for the year ended July 2022.
  • International markets: European equity markets reflected guarded optimism that the economy was improving, influenced by corporate earnings, inflationary pressures, and global unrest. October ultimately saw European stocks have their strongest month since June. Asian stock markets didn't fare quite so well in October. As overvaluation concerns around tech shares grew, volatility increased, prompting profit-taking, and resulting in a drop in stock market values. By the end of October, the STOXX Europe 600 Index rebounded from the previous month, closing up 2.5% for the month; the United Kingdom's FTSE rose 2.6%; Japan's Nikkei 225 Index declined 7.4%; and China's Shanghai Composite Index dropped 6.3%.
  • Consumer confidence: The Consumer Confidence Index rose 7.5 points to 91.7 in October, up from 84.2 in September. The Present Situation Index, based on consumers' assessment of current business and labor market conditions, advanced 8.6 points to 120.4. The Expectations Index, based on consumers' short-term outlook for income, business, and labor market conditions, increased 6.9 points to 72.6, only partially reversing three consecutive monthly declines.

Eye on the Year Ahead

Throughout the autumn season, the U.S. economy continued to experience moderate growth despite rising energy costs and the ongoing unrest in the Middle East. Heading into the winter, investors will look to see how the labor market and inflation influence the Federal Reserve's monetary policy moving forward.