November 2026 Market Commentary

November 10, 2026

• Third quarter GDP expanded at 3.4% annualized pace.
• Fed left rates unchanged at its October meeting.
• 10- and 30-Year Treasury yields reached highest levels since 2002.
• Control of Congress shifts from Republicans to Democrats.
• October Returns: S&P 500 -0.9%. Bloomberg US Aggregate Bond index 2.4%

October was a busy month, providing investors with a multitude of things to consider including higher energy prices, accelerating inflation, artificial intelligence (AI) concerns, monetary policy, third quarter earnings, and mid-term elections. Ongoing concerns about AI continued to fester, exacerbated by disappointing earnings reports from Google, Microsoft and Amazon. Though investors generally remained bullish on the long-term AI thesis- that it will be transformational for many industries and perhaps humanity itself- they nonetheless continued to fret about the massive sums of money being spent on AI infrastructure and what the potential returns will be.

AI stocks experienced further pressure following the mid-term elections. With any election that dramatically shifts the balance of power from one political party to the other, markets must determine which industries, or even individual companies, will benefit from, or be impacted by, the change. For AI stocks, the election results fueled concerns Democrats at both the federal and state level will pursue policies designed to slow the buildout of AI infrastructure, i.e. data centers. In addition, the general public seems to have developed an antipathy towards data centers, reflected by the number of ballot measures aimed at limiting or restricting their development. According to CNBC, there were 41 such ballot measures across 10 states, of which 40 passed.

Though it remains to be seen exactly how those measures and future policies will ultimately impact AI-related stocks, in the immediate aftermath of the elections, investors seemed to take a sell first, analyze later, approach. That was evident by the selloff on Thursday, November 5, as the S&P 500 fell 4.4%, while the tech-heavy NASDAQ, fell 5.5%, leaving it in correction territory, defined as down 10% or more from its recent record high. On some level, the selloff was not surprising. For the past several months growing concerns about the massive financial outlays to fund the buildout of data centers had resulted in periodic bouts of market volatility. In addition, after their meteoric rise over the past several years, many AI stocks were “priced for perfection” leaving them susceptible to negative headlines or events. With investors already nervous about the near-term prospects for AI stocks, Tuesday’s elections results were enough to convince many investors to sell and lock in profits before determining their next course of action.

Despite the selloff, a defining feature of equity markets in 2026 has been the general lack of volatility. Since 1996, the S&P 500 has experienced 315 daily declines of at least 2%, or about 10 per year. In 2026, the S&P 500 has experienced just two as of November 6, making this year unusual in terms of its lack of overall volatility. That number may increase in the near term, however, as investors continue to refine their outlook on the AI industry.

Prior to the post-election selloff, investors had been focused on strong third-quarter earnings growth. As of this writing, 88% of S&P 500 companies have reported third quarter earnings. According to industry group FactSet, thus far, 84% of companies have beaten their earnings estimate. Consolidated earnings growth for the quarter is expected to be 31%, led for the first time since 4Q22 not by the Mag 7, but by the other 493 companies in the S&P 500. The strength of earnings from the other 493 companies points to solid corporate fundamentals and underlying economic growth, two reasons for the market’s relative stability in 2026, despite being faced with numerous negative headlines regarding fighting in the Middle East, soaring energy prices, reaccelerating inflation, and a Fed rate hike.

Unlike equity markets, bond markets enjoyed strong returns in October, with the Bloomberg US Aggregate Bond index, the broadest measure of the US bond market, rising 2.4%, its best monthly return since December 2023, benefiting from a pullback in rates. For much of the summer, rates (US Treasury yields) marched higher propelled by concerns about rising federal government debt levels, surging corporate bond issuance by AI companies, and ongoing concerns about rising inflation. Rates at the long end of the Treasury yield curve peaked in early October with 10- and 30-Year yields reaching 5.31% and 5.67%, their highest respective levels since 2002. For the remainder of the month, rates declined on strong demand as investors sought to lock in some of the highest yields in over two decades. In addition, as the month progressed and concerns about the AI trade in equity markets intensified, bond markets resumed their more traditional role of serving as a safe haven asset during times of market stress.

Unfazed by higher rates, corporations continued to issue debt in October, pushing investment grade (IG) corporate bond issuance to ~$1.76T for the year, surpassing the previous annual record set in 2020, with two months remaining in the year. Depending on the source, debt issued in 2026 to fund the build out of AI infrastructure ranges from ~$300-370B, or 17-21% of total IG issuance.

Municipal bonds rebounded from September’s rout to deliver their best October in four decades. The rally was largely viewed as a relief rally, not just a response to broader fixed income market strength. Municipals’ relative strength was evident in the muni/Treasury ratio, which fell below 70% from above 80% a month earlier. November is an important month in municipal markets, with substantial cash flows to support demand, a push to complete issuance before December’s slowdown, and ballot measures that help shape the coming year’s borrowing calendar. Although 2026 is still expected to set a record for municipal issuance, redemptions and cash flows are creating natural demand. That demand, alongside the continued flight-to-quality trade, is supporting expectations for strong technical performance in the weeks ahead.

As expected, the Federal Reserve’s Federal Open Market Committee (FOMC) left the fed funds rate unchanged following its October meeting. The decision was not unanimous, however, as two members voted to increase rates by an additional 0.25%. Speaking at his press conference afterwards, Fed Chair Kevin Warsh continued his practice of providing no forward guidance. He did indicate though that in 2027 the FOMC will again meet eight times, but one of those meetings will be used to focus exclusively on broad monetary policy strategy. As a result, the FOMC will only vote on the federal funds rate seven times in 2027. In 2028, Warsh expects two meetings to be reserved for strategy discussions, leaving six for voting on rates. Market expectations for a December rate hike ended the month at 72%.

Broad macro-economic growth remained solid in the third quarter as the economy expanded at a 3.4% annualized rate, up from 2.2% in the second quarter, driven by strong consumer and business spending. Consumer spending accelerated to 3.8%, its fastest pace since 4Q24 as consumers continued to spend despite higher inflation. Within business spending, equipment spending, which includes spending on AI, grew 20.9%, the fastest pace in six years. Interestingly, private inventories saw their largest increase since 1Q25, which some economists attributed to companies preparing for renewed tariff announcements by the administration following the mid-term elections.

After showing signs of slowing in early summer, labor market conditions continued to improve in October as employers added 165K new jobs. August and September figures were revised higher by a combined 84K jobs, bringing the three-month average to 137K, the fastest pace of growth since May and second best since April 2024. Unemployment fell to 4.1%, leaving the figure rangebound between 4.1% and 4.4% for 27 out of the past 29 months. The labor force participation rate increased 0.1% to 61.9%, a seven-month high, as 421K individuals entered the labor force in search of work.

September inflation, reported in October, experienced renewed pressure due primarily to elevated energy prices. At the headline level, consumer inflation (CPI) rose 0.6% for the month, the largest monthly increase since April, driven by a 9.1% increase in gasoline prices. Compared to a year ago, headline CPI accelerated to 3.7%, its fastest pace since May. Core CPI, excluding food and energy, rose 0.3% for the month and 2.6% from a year ago. Oil prices increased 15% during the month as Middle East uncertainty remained elevated and President Trump suggested he might launch new military strikes against Iran. Without a meaningful and sustained decline in energy prices it is unlikely inflation will decline significantly from current levels.

Looking forward, despite the post-election sell off in AI stocks, there are reasons to be optimistic. Macro-economic growth remains strong, supported by healthy consumer spending. Corporate fundaments remain strong as evidenced by three consecutive quarters of 25%+ S&P 500 earnings growth. At worst, the mid-term elections will result in political gridlock in Washington which could provide increased policy certainty for financial markets. At best, the results could lead to a renewed spirit of bi-partisan cooperation on crafting legislation. AI stocks will likely remain susceptible to bouts of volatility as new governors and legislators are sworn in and new policies regarding AI data centers are developed. Given the economic importance of the AI buildout, it is unlikely new data centers will be prohibited. However, there is a good chance there will be increased regulation around where data centers can be built, the tax incentives provided for them, how they will be powered, and who will pay the power bills. All of that may slow the near-term pace of development but could prove to be positive by extending the development cycle while reducing the potential for overbuild, lessening the demand for capital from debt and equity markets, and leading to a healthier economic and market cycle.

Trust, estate planning, insurance, and investment products are not a deposit, not FDIC insured, not insured by any federal government agency, not guaranteed, subject to investment risks, including possible loss of the principal amount invested and may go down in value. Any information and research contained herein do not represent a recommendation of investment advice to buy or sell stocks or any financial instrument nor is it intended as an endorsement of any security or investment, and it does not constitute an offer or solicitation to buy or sell any securities or investment services. This content is for informational purposes only and does not constitute legal or tax advice. Please consult your legal or tax advisor for specific guidance tailored to your situation. First Western Trust Bank cannot provide tax advice.