October Update
Headlines & Highlights
- Federal Reserve resists rate hike: The Fed’s rate-setting committee opted to keep short-term interest rates at 3.75% to 4% at its October meeting. The 10-2 decision aligned with market expectations that the central bank would not hike less than a week before today’s midterm elections. Futures market activity currently pegs the chances of a December rate increase at close to 80% given the upward move in the Fed’s preferred inflation measure. September’s core Personal Consumption Expenditures index, which excludes food and energy, rose 3.1% over the preceding 12 months – this was 0.1% higher than August’s core PCE.
- U.S. economy grows 3.4% in 3Q: U.S. GDP expanded at an inflation-adjusted, annualized rate of 3.4% in the third quarter, according to the initial estimate by the federal Bureau of Economic Analysis. This growth pace was the fastest in a year and considerably more up-tempo than the 2.5% and 2.2% gains seen in the first and second quarters of 2026, respectively. Investment in AI data centers and brisk consumer spending were the key contributors to 3Q growth. Consumer confidence as measured by The Conference Board climbed in October – it was the first monthly increase since June.
- Stocks lose ground on AI selloff: A late-October tumble by some of the biggest AI-related stocks slightly dragged down U.S. large-cap stocks, while small caps rallied at month-end on falling bond yields. The iShares ETF for the S&P 500 Index finished October down close to 1% (+11.8% year to date) as investors reacted to fears about massive spending on AI infrastructure. The rotation into lower-risk bonds benefited rate-sensitive small caps, which had been struggling with rising bond yields – the iShares ETF for the Russell 2000 ended the month up 0.5% (+14.3% YTD). The Vanguard REIT Fund jumped 4.8% in October (+9.2% YTD), helped by lower yields, while muni bonds picked up 2.7% (+0.3% YTD).
Select Market Returns
Our Views
- It is finally here – the midterm election to determine control over both houses of Congress, as well as statehouses across the country. Polling suggests that the Democrats will win the U.S. House and maybe the Senate, but polls have had a spotty track record in recent years. Election results could create legislative gridlock, which could reduce policy uncertainties for businesses.
- Speaking of track records, over the past 80+ years, stocks have fared well post-midterms. Since the early 1940s, the S&P 500 has never been negative in the calendar year after a midterm elections – the winning streak is 21 straight heading into 2026 voting. Historical post-election performance aside, we are constructive on stocks in 2027 given expectations for continued solid earnings growth.
- While investors expect the Fed to raise short-term interest rates in December, we are not persuaded that such a move will do much to quell inflation. A war-related spike in energy prices and the resource demand for AI data centers are the main inflation drivers – a Fed hike will likely have little to no impact on these factors while it risks slowing economic momentum and the labor market.
- Negotiations are under way to try to end the Iran War and, in doing so, to bring stability to the Persian Gulf region. President Trump has threatened to escalate hostilities after the midterm elections, but it is increasingly clear to us (and many others) that a lasting end to the war can only be achieved through diplomatic means.
- The late-October selloff in AI-related stocks saw a number of major players endure double-digit dives from their recent price peaks. Over the past year, we have seen periodic bouts of worry regarding the AI infrastructure buildout, which is increasingly being funded by borrowing. While a setback, we believe the AI story remains solidly intact as a leading investment theme.
The material shown is for informational purposes only. Past performance is not indicative of future performance, and all investments are subject to the risk of loss. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities. Information herein incorporates Altair Advisers’ opinions as of the date of this publication, is subject to change without notice, and should not be considered as a solicitation to buy or sell any security. While efforts are made to ensure information contained herein is accurate, Altair Advisers cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice. See Altair Advisers’ Form ADV Part 2A and Form CRS at https://altairadvisers.com/disclosures/for additional information about Altair Advisers’ business practices and conflicts identified. All registered investment advisers are subject to the same fiduciary duty as Altair Advisers.
The material shown is for informational purposes only. Past performance is not indicative of future performance, and all investments are subject to the risk of loss. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities. Information herein incorporates Altair Advisers’ opinions as of the date of this publication, is subject to change without notice, and should not be considered as a solicitation to buy or sell any security. While efforts are made to ensure information contained herein is accurate, Altair Advisers cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice. See Altair Advisers’ Form ADV Part 2A and Form CRS at https://altairadvisers.com/disclosures/ for additional information about Altair Advisers’ business practices and conflicts identified. All registered investment advisers are subject to the same fiduciary duty as Altair Advisers.