November 2026
US Economy: Growth holds up as inflation persists
October’s releases offered more evidence of economic resilience but also accelerated inflation. Real US GDP grew at a 3.4% annualized pace in the third quarter, up from 2.2% in the second. Meanwhile, headline CPI rose 3.7% from a year earlier with gasoline contributing to the larger headline increase. Core CPI ex food and energy rose to 2.6%. The Fed held its target range unchanged after September’s increase though two dissents in favor of another hike underscored the tension between giving policy time to work and preventing inflation from becoming more entrenched.
US Stocks: Leadership changes beneath the surface
October’s modest headline decline concealed a sizable change in leadership. The S&P 500 fell 0.9%, leaving its year-to-date gain of 11.7%. Technology shares weakened, driving Nasdaq down 5.3% in the month, as investors questioned the eventual payoff from enormous AI spending commitments. Nevertheless, nine of the S&P 500’s eleven sectors advanced, and more than 70% of its constituents gained. Small- and mid-cap stocks also rose. The implication is that investors are reassessing concentrated exposure to AI specifically rather than uniformly abandoning equities.
Foreign Stocks: Global exposure can share the same risks
The late-month technology selloff extended to South Korea (-15.4%) and Taiwan (-8.3%) pummeling the emerging markets and highlighting how overseas holdings can share the same AI sensitivities as US portfolios. Indonesia faced a separate challenge as MSCI’s consideration of a downgrade to standalone-market status raised concerns about future index-related investment flows. Meanwhile, Europe (+0.5%) held up better although political and economic uncertainty in France and renewed pressure on Middle Eastern energy supplies complicated the outlook.
Fixed Income: Yields retreat while the Fed stands still
Treasuries recovered some ground after September’s sharp selloff. The 10-year yield declined from 5.3% to 4.9% at month end, while the 2-year fell from 4.9% to 4.6%, boosting bond prices. That rally is a reminder that the Fed matters less for intermediate bond yields than market supply and demand: changes in expectations and investors’ appetite for safety can move longer-term yields independently of the policy rate. Relatively higher income remains an important attraction to bonds despite the decline, although renewed inflation worries could reverse part of the recovery.
Real Assets: Energy, gold and infrastructure take different paths
Oil rose for a fourth consecutive month as tanker attacks and the risk of renewed escalation around Iran kept supply concerns elevated. December Brent futures settled near $118 at month end though they fell to $108 in early November on renewed optimism for Middle East diplomacy and easing supply constraints. Infrastructure equities also rallied nearly 7% with interest rates down and investors rotating away from direct AI risk. Gold, meanwhile, fell sharply late in the month despite geopolitical uncertainty. These divergent outcomes are a reminder that real assets are not interchangeable inflation hedges.
Alternatives: Financing discipline in focus
October’s stock market dispersion creates potential opportunities for long/short hedge fund managers, but also exposes strategies carrying crowded technology positions. In private equity, real estate and private credit, the same debate over expensive capital argues for closer attention to refinancing needs, interest coverage and the timing of distributions. That said, slower-moving private valuations should not be confused with an absence of economic risk. Our focus remains on underwriting and liquidity: what a borrower or asset can generate in cash, what financing it requires, and whether investors are adequately compensated for committing capital.
Equities Total Return
| OCT | YTD | 1 YR | |
|---|---|---|---|
| U.S. Large Cap | (0.9%) | 11.7% | 12.1% |
| U.S. Small Cap | 0.6% | 14.5% | 15.0% |
| U.S. Growth | (5.9%) | 0.1% | (2.1%) |
| U.S. Value | 4.3% | 24.3% | 28.5% |
| Int’l Developed | (0.7%) | 9.5% | 13.5% |
| Emerging Markets | (8.0%) | 13.5% | 14.1% |
Fixed Income Total Return
| OCT | YTD | 1 YR | |
|---|---|---|---|
| Taxable | |||
| U.S. Agg. Bond | 2.4% | (0.5%) | (0.1%) |
| TIPS | 2.6% | 0.4% | 0.2% |
| U.S. High Yield | 0.3% | 0.3% | 1.5% |
| Int’l Developed | 1.4% | (2.1%) | (3.3%) |
| Emerging Markets | 0.5% | 2.1% | 2.2% |
| Tax-Exempt | |||
| Intermediate Munis | 2.9% | 0.4% | 0.9% |
| Munis Broad Mkt | 3.6% | (0.3%) | 0.1% |
Non-Traditional Assets Total Return
| OCT | YTD | 1 YR | |
|---|---|---|---|
| Commodities | (0.1%) | 32.8% | 36.6% |
| REITs | 4.7% | 13.0% | 13.1% |
| Infrastructure | 6.9% | 8.9% | 11.8% |
| Hedge Funds | |||
| Absolute Return | (0.3%) | 0.9% | 1.9% |
| Overall HF Market | (0.9%) | 3.0% | 3.8% |
| Managed Futures | (1.2%) | 14.2% | 15.4% |
Economic Indicators
| OCT-26 | APR-25 | OCT-25 | |
|---|---|---|---|
| Equity Volatility | 19.4 | 16.9 | 17.4 |
| Implied Inflation | 2.3% | 2.5% | 2.3% |
| Gold Spot $/OZ | $3874.6 | $4617.9 | $4002.9 |
| Oil ($/BBL) | $117.6 | $114.0 | $65.1 |
| U.S. Dollar Index | 121.3 | 119.0 | 120.8 |
Our Take
With the midterm elections freshly decided, those falling into the base of the “Y-shaped economy” as we’ve called it, lower income Americans disenfranchised in an otherwise healthy economy, have spoken. The clearest message from voters was that the cost of living has become politically intolerable. Financial markets have initially greeted the results with relief: The outcome was decisive, the results were not seriously contested, and a pending divided government revives the familiar assumption that political gridlock is good for investors because it limits Washington’s ability to make sweeping changes. That interpretation may prove too comfortable.
Gridlock reduces the likelihood of major partisan legislation, yes, but the scale of the Democratic victory could also create an unfamiliar risk: bipartisanship. Republicans chastened by the results may become more willing to break with President Trump on issues that resonated with voters, including the cost and resource demands of the AI buildout. Democratic gubernatorial victories in Texas, Ohio and Georgia are particularly relevant; together, those states represent roughly 40% of planned data center capacity for projects reporting power needs. Tighter permitting, utility or water restrictions could slow construction there, even as states offering a more accommodating environment compete to capture displaced investment.
Divided government may also shift rather than eliminate political risk. A lame-duck president facing a hostile Congress could rely more aggressively on executive authority, including tariffs and trade restrictions, or pursue escalation in Iran in search of a foreign policy victory. Either path could raise costs, revive inflation and increase recession risk. Regardless, markets may eventually conclude that the policy response—not gridlock itself—is the more important investment variable. Looking farther ahead, investors may also begin asking whether the breadth of the Democratic victory foreshadows a potential sweep in 2028 and a higher-tax regime thereafter. Fortunately, the greater economy appears to be on stable footing which may well be able to withstand geopolitical headwinds.
We have written that the economy remains resilient often enough that the phrase risks losing its meaning. That said, prior to the midterms, October supplied a useful reminder of what it means for investors: growth can withstand higher borrowing costs, even while individual investments struggle to meet expectations. The Fed paused, Treasury yields declined, and much of the stock market advanced. At the same time, some of the companies most closely associated with the investment boom came under pressure. Economic resilience and disappointing investment returns can coexist.
The Fed’s inaction should not be mistaken for an imminent return to easing. Inflation remains elevated, and the dissenting votes show that the case for further tightening is still very much alive. But Chair Kevin Warsh also emphasized that stronger growth does not automatically mean the economy is overheating. Improving productivity can expand the economy’s capacity to produce, allowing more growth with less inflationary pressure. He noted that some of those gains predate the latest AI advances. This leaves room for a shorter tightening cycle than investors might otherwise assume, without making that outcome assured.
Likewise, improving inflation won’t necessarily restore cheap capital. Surging investment in computing, electricity and other infrastructure competes with government and private-sector borrowing for available financing. That demand could sustain relatively high real interest rates even as price pressures ease. Higher long-term rates also restrain housing, refinancing and valuations, potentially doing some of the Fed’s work. October’s decline in yields offers relief, but it does not eliminate the need for businesses to justify projects at a higher cost of capital.
That is where the AI and interest-rate stories meet. We have described AI as bubble prone because transformative technologies can attract more investment than their eventual profits justify. Many leading participants have established businesses, substantial earnings and strong balance sheets, making a simple replay of the dot-com era an inadequate framework. Still, an apparently stable earnings multiple offers little protection if the earnings forecast itself is too optimistic. The vulnerability may lie as much in assumptions about future margins and demand as in the price investors pay for each dollar of expected profit.
That all said, AI can create substantial economic value without allowing every participant in its development to earn an attractive return. As computing capacity expands and competing models improve, some of AI’s benefits may pass through to customers in the form of lower prices and greater productivity. The eventual winners may therefore include companies that adopt the technology efficiently without financing the infrastructure required to build it. That distinction—between creating value and capturing it—is becoming increasingly important for investors.
October’s market broadening may offer an early illustration. Investors did not reject growth altogether; they became more selective about which growth justified its financing requirements and valuation. With cash and high-quality bonds offering meaningful yields, every investment now competes against a credible alternative. The hurdle is no longer simply whether a project can increase revenue, but whether it can generate returns above a materially higher cost of capital.
We view greater discrimination as healthy, but it is not a guarantee of a painless adjustment. A substantial reduction in AI investment could weaken demand for equipment, construction and power, extending the impact beyond technology stocks. Rising debt also warrants attention to where losses could fall and how financing could tighten. Neither risk, on its own, establishes that a systemic financial crisis is inevitable. The relevant question is whether investment commitments and debt obligations remain supportable if revenue growth disappoints.
For portfolios, October and the uncertainty introduced by the midterm elections reinforce the value of owning more than one source of growth. Diversification across industries and regions, high-quality bonds and carefully selected alternatives can reduce reliance on a single set of AI assumptions. For taxable portfolios, rebalancing should weigh concentration risk against the cost of realizing gains, while liquidity should reflect spending needs and unfunded commitments. The opportunity in AI remains substantial. Our task is to participate without requiring every ambitious forecast to come true.
