October 2026 Market Commentary: Markets Mixed As Bond Yields Pull Back

Markets were mixed in October, as growth stocks tumbled on renewed concerns over AI profitability while value stocks and small caps rallied on lower bond yields.  

We continue to parse the news and the noise through our data-driven Three Dials allocation framework, which, despite a volatile month, was unchanged during October, as we outline below. 

TECHNICAL

While we saw worrying signs of deteriorating breadth toward the end of last month, with far more stocks hitting new lows than new highs, this trend sharply reversed during the month of October, culminating with the S&P Equal-Weight index seeing its best month of outperformance over its cap-weighted counterpart since the COVID selloff of March 2020. As technicals continue to hold firm, our Technical Dial stays Positive.

ECONOMIC

Our first look at Q3 GDP revealed just how much economic growth is reliant on the AI buildout, with the nonresidential fixed investment share of GDP now outpacing that of the DotCom CapEx boom. Questions remain over how long business investment can overshadow a pessimistic consumer, and as such, our Fundamental Dial remains in Neutral. 

VALUATION

With corporate earnings again in full swing, investors get another chance to scrutinize profits and spending plans. In what is becoming a common refrain amongst AI-dependent stories, Meta stock was once again punished in Q3 after strong profits but plummeting free cash flow as capital expenditures ballooned for the second consecutive quarter. We remain wary of these potentially unsustainable spending trends, and as such our Valuation Dial stays Negative.

MARKET COMMENTARY

Markets were mixed in October, as growth stocks tumbled on renewed concerns over AI profitability while value stocks and small caps rallied on lower bond yields.

On balance, the S&P 500 fell -1% on the month, though the 10% outperformance of Value stocks over Growth was the largest monthly spread going back to at least the height of the tech bubble in 2000.

The blue-chip index is still up +12% year-to-date. Mid cap stocks added +2% on the month (+12% YTD), while small caps gained +3% (+16% YTD), with both bouncing back from a September selloff.

Overseas stocks saw a similar dispersion in performance, with value-oriented developed market stocks falling just -1% in October (+10% YTD), while the growth-heavy emerging markets plummeted -8% (+12% YTD).

Within fixed income, bond markets clawed back losses from the previous month, as the Bloomberg Aggregate Bond Index rallied +2.4% in October and is now down just -0.5% for the year. The 10-year Treasury yield closed the month below 5% after briefly touching 5.3% for the first time since 2002.

Commodity prices continued their wild ride, with oil prices surging back above $100 for its highest monthly close since April, while gold prices dropped below $4,000 for a new 12-month low.