For the period covering October 1, 2026, through November 6, 2026.
This edition of the Monthly Market Radar runs through the first week of November, due to the midterm elections and subsequent market selloff. October was largely a story about who was leading the market. The small group of AI and technology giants that carried stocks for most of the past year was the only group to fall, on average, while roughly 70% to 75% of S&P 500 companies beat the index. The Healthcare, Consumer Staples, and Utilities sectors – which almost nobody was talking about in September – moved to the front, gaining roughly 10% to 12% in October.
The first week of November was, of course, a bit rougher. A brief rally after the midterm elections gave way to another round of selling, led by technology and semiconductor stocks. On November 5, the S&P 500 fell 4.4%, its worst day since April 2025, and the Nasdaq slipped into correction territory. Stocks recovered some ground on Friday, but the S&P 500 still finished the week down 2.7%.
Weeks like that are unsettling, but they aren’t unusual, and they don’t change the case for staying invested in a well-built, long-term plan. What matters more is understanding what drove the volatility and what to watch from here.
Global Perspective
Solid Numbers, Shaky Sentiment
On paper, the U.S. economy is in decent shape. Third-quarter growth came in just under 3.5%, according to the government’s first estimate. People are still spending, companies are pouring money into AI, and the job market is holding up – with employers adding 165,000 jobs in October, more than double what economists expected. And yet, consumer sentiment is near historic lows. Both things can be true: GDP measures total economic output, but that doesn’t mean the grocery, gas, or utility bills are any cheaper for households. This disconnect extends beyond the U.S., too. Global growth has remained resilient, but increasingly uneven. The IMF expects the world economy to grow about 3.1% in 2026, with countries tied to the technology boom holding up better than many energy-importing economies facing higher costs.
Oil Swings Both Ways
Headline inflation rose to 3.7% in September, and energy is the biggest reason, with prices up 20% over the past year. The conflict involving Iran and disruptions around the Strait of Hormuz pushed oil prices up more than 13% in October, before they reversed course by roughly the same amount in early November, on hopes the election could help bring the conflict to an end. Those swings matter far beyond the U.S., too. Countries that rely heavily on imported energy are especially vulnerable because higher oil and fuel prices raise transportation, manufacturing, and household costs all at once. The IMF expects global inflation to reach 4.7% in 2026, underscoring how broadly the energy shock is being felt. Prices for services are still rising by about 3% a year, led by housing costs. And with inflation well above target, the Fed raised rates in September for the first time in three years, then held steady in October.
Adjusting to Life with Higher Rates
The 10-year Treasury yield ended September near 5.3%, its highest level in nearly two decades, then fell roughly 0.4 percentage points by early November as investors moved out of stocks and into bonds. Even so, persistent inflation and solid growth are keeping borrowing costs high, and after a strong October jobs report, markets still see a good chance the Fed raises rates again in December. Today’s rates aren’t extreme by longer-term historical standards, but they feel that way after a decade of near-zero interest rates. The pressure isn’t limited to the U.S., either. Governments and borrowers across major foreign economies are also adjusting to a world where financing costs are meaningfully higher than they were for much of the past decade.
AI Is Becoming an Economic Engine
AI spending is now big enough to show up in the national numbers. Consumer spending has historically driven roughly 70% of U.S. economic activity, but with households feeling more cautious, corporate investment in data centers, chips, and other AI infrastructure is playing a larger role in growth. What happens next depends a lot on timing. If inflation cools first, households get some relief. If the AI buildout slows first, the economy loses one of its strongest sources of investment. And this isn’t just a U.S. dynamic. Globally, the technology boom is creating an increasingly uneven backdrop, benefiting economies closely tied to AI and semiconductor supply chains, while providing less of a lift elsewhere. The IMF identifies that technology divide as one reason global economic resilience is becoming less evenly distributed.
Takeaway: Why It All Matters
Growth is holding up better than expected, but not everywhere and not without tradeoffs. Higher energy costs, uneven inflation, and expensive borrowing are affecting countries differently, while the technology boom is creating clear winners and losers. For investors, that makes global diversification more relevant, not less, particularly when economic conditions are moving at different speeds around the world.
Equities
AI Spending Scrutiny Intensifies
October marked a shift in how investors viewed AI and the ecosystem around it. Companies have spent enormous sums building out AI, and while some plan to keep spending through 2027, investors are increasingly asking what that investment will actually produce. Balance sheets, debt, and free cash flow are getting much more attention, and spending plans that were applauded a year ago are now facing greater scrutiny. Technology stocks fell about 7% in October and another 7% in the first week of November, while Communication Services dropped about 15% in October. We don’t view that as a verdict against AI. We view it as investors becoming much more demanding about what they’re willing to pay for.
The Election Rattled the AI Trade
Democrats won control of both the House and Senate, and investors quickly started asking what that means for AI. There’s a perception that Democrats will slow data center construction, both in Texas and more broadly, and bring tighter regulation of AI. Data center developers and power companies tied to those projects fell sharply after the election, while some healthcare and clean energy stocks rallied. Many analysts, though, expect the build-out to get slower and more expensive, not disappear.
Better Outlook, Cheaper Stocks
The most surprising disconnect showed up in semiconductors, where the earnings outlook improved through October even as the stocks got cheaper. Chip stocks fell about 15% in October, and valuations for many AI chipmakers have dropped more than 30% since mid-year. The selling got heavier in the first week of November, when some chipmakers lost as much as 25%. The key question now is whether those earnings estimates will hold up. There’s no guarantee the stocks will catch up, and if they do, there’s no telling when. Still, gaps like this can create meaningful opportunities for patient investors.
More Winners, Mixed Signals
A market led by a small group of mega-cap tech stocks can be vulnerable, which makes broader participation a welcome change. In October, the S&P 500 slipped about 1%, but the average stock in it gained about 5%. Some of that strength came from Healthcare, Consumer Staples, and Utilities – defensive sectors that investors often turn to when they’re nervous – and those sectors held up far better than the broader market in the first week of November. It’s a notable shift, but a few weeks isn’t enough to call it a trend.
Different Labels, Same Bet
A broader market doesn’t necessarily mean less exposure to AI. Utilities supply the power for data centers, industrial companies build them, and lenders help finance them. That became clear in the first week of November, when some power companies tied to data center projects fell almost as sharply as chip stocks after the election. A utility and a chipmaker may sit in different sectors, but if both depend on AI spending, they can rise and fall together. For this reason, we think it’s important to look beyond sector labels and consider what actually drives each investment when evaluating diversification.
Takeaway: Why It All Matters
October rewarded a much wider slice of the market, and early November showed how much of it still moves with AI. We’d rather own good businesses at sensible prices with a clear path to profit than chase last year’s winners or react to a few rough trading days.
Fixed Income
Bonds Are Paying Again
Bonds have been a frustrating asset class for years, but they’re finally interesting again. Many high-quality bonds now yield around 5%, so income is doing more of the work, and there’s more cushion when prices swing with every new read on inflation and the Fed. Since the beginning of October, as yields have fallen, the broad U.S. bond market has gained more than 2%. And when stocks fell sharply on November 5, Treasuries rallied as investors looked for safety, a reminder of why high-quality bonds belong in a diversified portfolio.
The Borrowing Crunch Is Building
Part of the reason yields are high is supply. The U.S. government faces roughly $13.6 trillion in debt maturities over the next year, and it’s refinancing at the same time corporations, government agencies, and AI companies are all borrowing heavily. That keeps yields attractive for lenders, and it’s starting to pinch companies with weaker balance sheets. Lenders are already asking those borrowers for more: the extra yield on high-yield bonds rose in October, and credit markets came under more pressure during the recent selloff.
No Need to Reach for Yield
Right now, there’s little reason to take on extra risk for more income. Treasuries and financially strong companies already pay competitive rates, and the wave of new issuance gives investors plenty to choose from. Extra credit risk doesn’t pay as much as it used to, so we think quality, liquidity, and careful selection matter more right now than simply chasing the highest yield.
Munis Went on Sale
A rough September left municipal bonds cheaper heading into October, with yields reaching their highest levels in about a decade. For higher-income investors, tax-equivalent yields reached roughly 7% to 8%, and even more for those who also pay state income taxes. Demand has held up, which suggests September was more of an opportunity than a warning.
Takeaway: Why It All Matters
With yields around 5%, high-quality bonds are earning their place in portfolios again, providing meaningful income and, as the first week of November showed, a cushion when stocks fall. Investors don’t need to take on much extra risk to collect that income, which makes this a good time to focus on issuer quality.
Looking Ahead
New Congress, Same Fundamentals
Over the next two years, a divided government will likely make big tax or spending bills harder to pass and bring more scrutiny of existing policy. It’s worth watching, but it isn’t a reason to rebuild a portfolio. Over the long run, earnings, inflation, rates, and valuations will matter more than the balance of power in Washington.
AI Meets the Power Grid
The next phase of the AI build-out may depend as much on physical resources as on technology. Data centers need power, land, water, cooling, and transmission lines, and some communities are pushing back. In the wake of the election, investors are also considering the possibility that a Democratic Congress could tighten the reins on data center construction, or on AI more broadly. Either could delay or relocate new projects, making data centers that are already up and running more valuable.
The Bill for All This Borrowing
Washington, AI, energy, and manufacturing are all borrowing at once. That competition could keep long-term rates high no matter what the Fed does with short-term rates, and it touches everything from bond yields to stock valuations. For many projects, the cost of financing now matters as much as the potential payoff.
Earnings or Nerves?
The biggest open question from this period is whether the rotation into Healthcare, Consumer Staples, and Utilities will last. If those sectors keep gaining because their earnings are improving, it could signal a meaningful change in which parts of the market are driving returns. But if investors are simply parking money there until the uncertainty passes, the gains could reverse as confidence comes back.
Rough Weeks Happen
Days like November 5 are hard to watch, but sharp swings are a normal part of investing, and some of the market’s strongest days have historically come while uncertainty is still in the headlines. That’s why, for long-term investors, the cost of stepping out of the market can be higher than the cost of riding out a rough patch.
Takeaway: Why It All Matters
We don’t think anyone should overhaul a portfolio because of moves in Washington or a few difficult trading days. With bonds paying meaningful income again and opportunity spreading across the stock market, there are more ways to build portfolios with genuinely different sources of return – ones that don’t hinge on AI, interest rates, or any single policy outcome.
This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor’s specific circumstances. Investing involves risk, including possible loss of principal.
2026-14803
Related insights
