October 2026 Monthly Review

A Look Back

The above title comes from the folk-singing legend, Bob Dylan. He wrote and recorded Tangled Up in Blue in 1974, and it was released in 1975, receiving widespread critical acclaim. Rolling Stone magazine ranked it #68 on their list of the 500 greatest songs of all-time. I heard it recently and thought it was a decent description of markets currently. We are a bit tangled with higher interest rates, sticky inflation, and AI stock sector selloff…and yet pretty good top-line economic numbers. Then, with the outcome of the mid-term elections and the “blue wave” with Democrats gaining a majority in the House and Senate, Tangled Up in Blue made even more sense. The fall months of September and October have never been the best months for stocks, and this year was no different. Large-cap stocks were down by .87%, while the tech-driven NASDAQ was much worse at -5.28%. After leading the way all year, Emerging Market stocks shed over 8% in the month. Traditional alternatives like gold and bitcoin took a similar plunge, down 6.55% and 7.44%, respectively. With longer-term interest rates declining in October, core bonds delivered a strong 2.44% return, helping to offset negative stock returns…Finally!

Recent economic reports have been favorable. Third quarter GDP estimates in the U.S. were released in October and showed our economy growing at 3.4%, up from 2.2% in the second quarter. It was driven by strong consumer spending and private domestic investment (up19.4%) tied to AI infrastructure and data centers. The recently released Jobs report showed the economy adding 165,000 jobs in October, beating expectations of roughly 60,000. The already low unemployment rate dropped to 4.1% from 4.2%. In addition, about 83% of reporting S&P 500 companies have beaten earnings-per-share estimates, and 66% have exceeded revenue estimates…and yet markets have underwhelmed…quite the tangle.

A Look Ahead

Here are some interesting numbers to ponder. As of November 6th close, 60% of the S&P 500 stocks are down 20% or more from their all-time highs, and 25% are down 40% or more. And all of this, with the index still up over 8% YTD! There has been a significant rotation taking place, mostly from the high-flying stocks with ties to the overall AI buildout, and specifically the companies that rely exclusively on the upward trajectory of AI…without the accompanying positive cash flow. We believe that recent volatility is probably not over as we adjust to the election results and changing stock market leadership. However, current economic numbers do not support a prolonged downturn, and our hunch is investors might start taking a stab at some of those beaten-up stocks. A little tangle is not so bad, whether it’s blue or otherwise...