Week in Review: October 23, 2026

October 26, 2026

Summary

• Stocks were mixed, with AI-related equities continuing to be under pressure.
• International oil prices spiked, up 5% for the week.
• Treasury yields fell below 5.00%, while credit spreads widened.
• S&P earnings growth continues to be strong.

Overview 

Markets ended the week mixed, with the S&P 500 and NASDAQ 100 moving lower amid renewed volatility in AI related stocks that dominate those market cap weighted indices. The Dow and equal weight S&P 500, which are less leveraged to the AI trade, posted gains. Treasury yields compressed sharply as investors moved toward safer assets, with the 10-Year Treasury falling below 5.00% following Thursday’s technology-led equity selloff. The move in rates was an interesting swing after yields reached multi-decade highs in early October. Energy and underlying economic data continued to give the Federal Reserve little reason to declare victory over inflation. Expectations for future rate hikes continue to evolve with Fed Fund futures suggesting only an 8.8% of an October rate increase while the December meeting currently prices a 74.6% implied chance of a 25-bps hike. 

Energy prices remained an important source of inflationary pressure. International oil prices moved higher as renewed attacks in the Middle East increased concern over global supply disruptions. Brent crude (the international measure of oil prices) gained roughly 6% for the week and finished above $117 per barrel. The domestic benchmark, WTI, increased only 2%. Separately, Russia agreed to resume U.S. mediated negotiations with Ukraine as soon as next month, providing at least a potential path toward reducing one source of geopolitical uncertainty. This past Wednesday, the Department of Energy authorized the exchange of up to 315,000 barrels of fuel oil from the Northeast Home Heating Oil Reserve with an intent of improving regional supply, reducing heating costs in the region ahead of winter. The amount represents nearly one-third of the reserve’s roughly one million barrels. 

Economic data continued to point toward solid U.S. growth alongside persistent inflation pressure. Through Friday, 24% of S&P 500 companies had reported results and 83% had exceeded consensus earnings estimates. FactSet now estimates third-quarter earnings growth of 29.5%, which, if realized, would mark the third consecutive quarter of earnings growth above 25%. S&P Global’s preliminary October Composite Purchasing Managers’ Index (PMI) declined modestly to 57.6 from 58.4 in September but remained firmly in expansionary territory. New orders reached their highest level since March 2022, while selling prices rose at their fastest pace since August 2022.  

This combination of healthy demand and elevated pricing alongside high energy prices reinforces the challenge facing the Federal Reserve: economic activity remains strong enough to absorb restrictive interest rates, while inflationary pressures have not fully subsided in the broader economy.  

The Details 

Equities 

Broad equity indexes and the average stock were positive this week, while AI related companies continued to endure scrutiny. The broadly diversified equal weighted S&P 500 and small cap Russell 2000 rose 1.1% and 2.0%, respectively. The more concentrated S&P 500 fell 0.5%, and the Nasdaq declined 0.7%. Under the surface, semiconductor shares continued to fall, down 2.1%. The Magnificent 7 was also under pressure, falling 1.7%, though losses were concentrated in Meta and Alphabet shares. Goldman Sachs reported this was the largest week of hedge funds selling technology shares in over ten years. Concentrated selling by hedge funds typically results in buying elsewhere, which may explain the diverging fortunes of AI related companies from the average company and broader indices. 

Meta and SpaceX earnings were the defining events for the equity markets this week. Meta, in particular, set the tone by making it abundantly clear it plans to continue spending aggressively to build AI infrastructure, and external sources of capital will be needed to fund the build, including significant equity. SpaceX earnings results and associated commentary also suggest vast capital requirements.  

Negative stock price reactions to these disclosures and rising AI debt yields are raising questions about the capital market’s willingness to absorb the required issuance. The supply of compute power today remains insufficient to meet demand, as evidenced by company commentary and spot pricing for compute rental. However, the scale of planned capital investment raises reasonable questions about the supply/demand balance one or two years into the future. While equity markets, with infinite duration and unbounded upside, might be willing to dream a fantastical dream, debt investors are grounded in math and thus could push some of the risk back to the equity markets. Equities may enjoy greater upside but, as with any asset, are also subject to the laws of supply and demand. If supply goes up through issuance, by incumbents or IPOs, the market clearing price is likely to be lower. Growing equity supply is likely to be a theme in 2027.  

Earnings reports from hyperscale cloud providers (Alphabet, Amazon and Microsoft) over the next week will provide a critical update on the rate of growth and need for such significant ongoing investment. While results are likely to be strong, investors may take a wait and see approach, particularly in light of swirling risks around Iran, higher interest rates and mid-term elections. 

Fixed Income 

The 10-year Treasury yield fell approximately 24 bps over the week to 4.99%, including its strongest one-day rally in roughly 15 months on Thursday. The move reflected several crosscurrents, but was broadly understood as a flight-to-quality amid concerns about AI-related spending, crude oil prices, and escalating tensions in the Middle East. Most of the rally occurred at the long end of the curve, while short-term yields remained more closely tied to the near-term inflation outlook. That created an unusual tension: safe-haven demand pushed yields lower even as crude oil — an inflationary force and a contributor to this year’s rise in yields — rose significantly. Given how sharply yields have risen this year while underlying credit fundamentals have remained solid, this week’s flight-to-quality may reflect the upcoming Fed meeting and the midterm elections, not just the geopolitical backdrop. Mortgage rates declined for the first time in nine weeks, easing from 7.40% to 7.32%, but the modest move offers little relief against an otherwise weak housing backdrop. 

Thursday’s treasury rally represented a clear flight-to-quality in response to AI equity weakness. Meta’s announcement of continued capital-spending growth was a key catalyst, contributing to both the Treasury rally and wider credit spreads; forced selling by leveraged hedge funds amplified the moves. Bloomberg U.S. high-yield spreads reached their widest level in 17 months, increasing 29 bps over the past two weeks. Although spreads had drifted wider over the last few months, after starting the year at historically tight levels, last week’s move was the most acute. Investment-grade issuance remains an important gauge of stress around absolute yields, spreads, and secondary-market support. After a record year, issuance slowed sharply in October and is expected to fall short of forecasts, with the market effectively closed on Thursday and Friday. 

Global fixed-income markets were volatile, led by developments in France. Nationwide cost-of-living protests and budget concerns sharpened the selloff in French 10-year government bonds (“OATs”), reflecting what BlackRock described as a “symptom of an intensifying global battle for capital.” The ECB meets next week against a complex backdrop: expectations that President Lagarde will depart, the pending election of a new president, continued pressure to tighten despite expectations for a pause, and signs of fragmentation across member economies—most visibly in the widening spread between French OATs and German Bunds. 

Municipal bonds had a strong week, with 10-year AAA yields falling 36 bps compared with a 24-bp decline in comparable U.S. Treasury yields. November is typically a heavy month for cash flows and redemptions, which should provide meaningful technical support even if new-issue supply remains elevated. If issuers continue to resist current absolute borrowing costs, reduced supply could provide an additional tailwind for prices into year-end. That favorable technical backdrop should help insulate municipals from some of the volatility affecting the broader fixed-income market. 

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