November 11, 2026
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Financial markets experienced a volatile October, as investors balanced resilient corporate earnings and enthusiasm for artificial intelligence against inflationary pressures, elevated bond yields and uncertainty surrounding the outlook for monetary policy. While some of the inflation pressure that the U.S. is experiencing today is continued fallout from the pandemic, much of it is also related to lasting tariff effects, energy costs, and even AI related investment demand.¹

Notably, inflation has remained above the Fed’s coveted 2% level for more than five years straight² and has made the future of path of rates largely uncertain. The Fed’s September decision to raise rates marked a stark contrast to the soft-landing narrative that had been pitched since 2022 and through early 2026. If this economy is still waiting for a soft landing, it might behoove us to locate the runway first.

Equities have demonstrated resilience despite intermittent bouts of volatility. Domestically and abroad, technology and AI-related shares have remained important drivers of performance, although market gains have not been broad-based. In part because the hotter-than-expected inflation data earlier in the month heightened concerns about further monetary tightening, placing pressure on these technology stocks and other growth-oriented options. This made for mixed returns across sectors and in turn mixed returns between NASDAQ and the S&P 500 because of their differing allocations to each sector. Nasdaq returned -5.28% and the S&P 500 Index returned -0.93% for the month.

International equities faced the same pressures with the MSCI EAFE Index returning -0.73% and the MSCI Emerging Markets Index returning -8.04% for the month. Some of the emerging market relative underperformance could be related to the sector makeup of emerging markets. Generally, the heaviest weighted sectors for these emerging market economies include information technology and financials. The same sectors face increased pressures tied to inflation, energy costs, and monetary policy decisions.

Following Septembers relatively significant selloff in debt, October was a rather sharp reversal. The Bloomberg US Aggregate Total Return Value Unhedged USD Index closed the month +2.44, recovering much of the prior month’s decline. The rebound was supported by treasury yields drawing back as concerns surrounding AI-related investment and financing risks prompted a shift toward safer government securities. Persistent inflation concerns and uncertainty over the future path of interest rates have limited the appeal of longer-duration bonds.

Continuing their data driven approach, at the end of October, the Fed made the decision to hold interest rates steady, with two of the twelve voting members in favor of a rate hike.3 Following the decision, chairman Kevin Warsh held a briefing where he gave commentary on the current economic environment. Warsh opened his statement describing the strength of the economy, noting resilient domestic spending, strong productivity growth, and robust capital investment.³

^‍Though the economy may be demonstrating resilience, the issues with inflation and higher for longer rates remain. In his statement Warsh commented on the ‘tighter financial conditions’ when he stated that “these developments go in the direction of achieving a longer, more durable period of economic growth and price stability.”³ Ideally, this could instill confidence in a sustainable environment for both debt and equities. At this point, equities appear to be largely concerned with earnings, and bonds seem more concerned about the Fed and the future path of interest rates. Plainly, the two cannot be divorced and will continue to influence markets as the year closes out.

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