This market update highlights key developments across equities, fixed income, and the broader economic landscape.
Equities – Most Stocks Rose in October
The S&P 500 returned ‑0.87% in October, but most stocks in the index went up. Nine of eleven sectors rose. Four of them gained more than 10%. The drag came from a handful of the biggest technology companies, which is why the Nasdaq lost 5.3%, its worst month since March 2025. One way to see this: the equal-weighted S&P 500, where every company counts the same, beat the regular index by 5.8 percentage points. We have not seen a gap that wide since April 2009. The Russell 2000 returned 0.58%. Developed international markets (MSCI EAFE) returned ‑0.73%. Emerging markets fell hard, returning ‑8.04%. South Korean and Taiwanese chipmakers carry a lot of weight in those indexes, and they sold off with the rest of the semiconductor group. The MSCI ACWI, our broad global benchmark, returned ‑1.62%.
Spotlight: Investors Ask When AI Spending Pays Off – A Rough Month for the Largest Technology Companies
The big technology companies are spending heavily on artificial intelligence capacity, and in October that spending weighed on their stocks. Alphabet reported negative free cash flow for the quarter because of its capital budget, and the shares had a sharp one-day drop. Intel beat estimates for the third quarter, then gave a weak outlook, and fell 29% on October 30. Memory chipmakers here and in Asia moved on the same worry. The returns these companies earn on their AI investments are high, and the demand behind them has not changed. Taiwan Semiconductor, which makes chips for most of the industry, reported third quarter revenue of $46.72 billion, above its own guidance, and raised its 2026 growth forecast to about 44%.
Bonds – Long-Term Yields Came Down
The 10-year Treasury yield fell from 5.28% to 4.93% during October. The 2-year fell from 4.89% to 4.59%. Bond prices move opposite to yields, so the Bloomberg U.S. Aggregate Bond Index returned 2.44%, winning back most of what it lost in September. Our view since the summer has been that a Fed willing to raise rates would give investors more confidence that inflation gets contained, and that yields on longer bonds would come down as a result. October played out that way. The weak September jobs report and a tame core inflation reading helped it along. The 10-year now yields 34 basis points more than the 2-year. Even after the rally, high quality bonds pay close to 5%. For anyone who needs income from a portfolio, that is still a good place to be.
The Federal Reserve – No Change in October. December Is Likely.
The Fed left its benchmark rate at 3.75% to 4.00% on October 28. Ten members voted to hold. Governor Lisa Cook and Cleveland Fed President Beth Hammack wanted another quarter point increase. Chair Warsh gave no guidance on the next meeting, but futures markets put the odds of a December hike at about 85% by the end of the day. This is in line with our expectation of 25 to 50 basis points of increases before year end. The first 25 came in September. A second in December would finish the range. We do not read this as the start of a long tightening campaign. The Fed is close to done, and the bond market seems to think so too, since long-term yields fell in October even as the odds of a December hike went up.
The Economy and Global Events – Slower Hiring, Higher Gas Prices, Solid Orders
Employers added 29,000 jobs in September, far fewer than expected. The unemployment rate ticked up to 4.2%. Wages grew 3.0% over the past year, the slowest pace since 2021. Consumer prices rose 3.7% over the past year, up from 3.4% in August, and gasoline was most of the reason. Gas prices are up 34.2% from a year ago and accounted for more than half of September’s monthly increase. Core inflation, which leaves out food and energy, was 2.6%. New orders, the indicator we lean on most for where the economy is headed, held up. The ISM manufacturing new orders index rose to 55.3 in September from 53.7, its ninth straight month above 50. The services new orders index came in at 59.8, just below August’s 60.9, which was the highest reading in several years. Readings above 50 mean orders are growing. In energy markets, Brent crude rose about 11% in October to roughly $113 a barrel after Iran again declared the Strait of Hormuz closed on October 26. We still expect this to be resolved over time.
Bottom Line – Where We Are?
October was a good month for diversified portfolios. Most stocks rose while a few very large ones fell, and bonds had their best month in a long time as long-term yields came down. Portfolios were set up for both outcomes. The economy is still growing. Orders are strong and core inflation is contained. Hiring has slowed, and gasoline is keeping the headline inflation number higher than we would like. The Fed has one more increase to make, probably in December, and then we expect it to stop. We are not changing anything about how we invest: good companies, spread across sectors and regions, and high quality bonds that pay us to wait. Between now and the next communication we will be watching the December Fed meeting, the October jobs and inflation reports, and what the largest technology companies say about their spending plans for next year.
Disclosure
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Facts presented have been obtained from sources believed to be reliable, though Gryphon cannot guarantee their accuracy or completeness. Gryphon does not provide tax, accounting, or legal advice. Individuals should seek such guidance from qualified professionals based on their specific circumstances.