In the final two weeks of October, the corporate earnings season triggered some sharp sell-offs in equities, particularly in the artificial intelligence sector. Some commentators were already speaking of “News Failure”: even strong corporate results were no longer enough to stabilise share prices, let alone drive them higher. Investors were becoming increasingly concerned about the enormous sums Big Tech is pouring into AI infrastructure, with little prospect of commensurate returns in the near term.
While the Dow Jones (+1.7%) and the Russell 2000 (+0.5%) managed to remain in positive territory in October, the S&P 500 fell 0.9% and the Nasdaq Composite shed as much as 5.3%. Beneath the surface, however, market moves were exceptionally pronounced. Among the “Magnificent Seven”, Alphabet, Meta and Nvidia each lost more than 10%, while Tesla, Apple and Microsoft ended the month higher.
In Europe, the Stoxx 600 gained 1.9%. The more defensively oriented Swiss Leader Index (SLI) performed even better, advancing 6.3%.
There was some relief in bond markets, with the yield on 10-year US Treasuries falling from 5.3% to 4.9%. Yields on long-dated government bonds in Germany and Switzerland also declined. In Europe, however, concerns mounted over the widening yield spread between French and German government bonds.
Notably, the recent decline in long-term bond yields appears to have been driven less by falling inflation expectations than by easing pressure on real rates. The enormous investment programmes in AI infrastructure and data centres had previously generated substantial additional demand for capital. Should expectations for the pace of this investment begin to moderate, the consequences could extend well beyond the technology sector, weighing on economic growth and putting further downward pressure on interest rates.
In credit markets, the widening spreads on US corporate bonds rated CCC or below to more than 13% pointed to growing risk aversion.
Gold offered little protection against the market turmoil, falling below the USD 4,000 an ounce mark towards the end of the month. Brent crude, meanwhile, climbed to USD 113 a barrel. Persistently high energy prices are likely to put central banks’ commitment to fighting inflation, and their policy response, to the test.
Over the coming weeks, the key question will be whether technology stocks can regain their footing. At the same time, investors will be watching whether tensions in the Middle East ease sufficiently to relieve pressure on oil prices. Developments on that front are likely to have a direct bearing on expectations for the future path of interest rates. October made one thing clear: falling long-term bond yields alone are not enough to restore investor confidence when corporate earnings, financing costs and the inflation outlook are all being called into question.
US gross domestic product (GDP) grew at an annualised rate of 3.4% in the third quarter of 2026. Economic growth thus accelerated markedly, comfortably exceeding analysts’ expectations. Excluding the substantial drag from net exports – exports minus imports – the real growth rate was even well above 6%. In the second quarter, growth had stood at 2.2%.
Inflation indicators on both sides of the Atlantic remained elevated. As expected, the US Federal Reserve and the European Central Bank left interest rates unchanged. By year-end, markets were still pricing in a further rate increase in the US. Another move in Europe also remains a possibility. At the ECB’s latest meeting, however, the focus was primarily on Christine Lagarde’s announcement that she would step down as president in early February 2027. This could give French President Emmanuel Macron and German Chancellor Friedrich Merz an opportunity to agree on a successor to head the ECB, one of Europe’s most important institutions, ahead of the forthcoming elections.
Market commentators often display a pronounced underlying bias: they tend to be either bullish or bearish. Data and developments that do not fit their respective narratives are readily – whether consciously or unconsciously – ignored.
From a seasonal perspective, November ranks among the strongest months for equities, particularly in years when the US holds midterm elections. We remain cautiously optimistic on equities. The spectacular losses suffered by companies operating within the AI ecosystem nevertheless serve as a further reminder of the importance of broad diversification. Alongside cyclical growth stocks, we therefore continue to hold more defensive companies in healthcare, consumer staples and utilities. Energy stocks should also remain an effective hedge against any further escalation in the Middle East.
Yields on high-quality government bonds could decline further in the event of an economic slowdown in early 2027, generating corresponding capital gains.
The gold price has fallen below USD 4,000 an ounce in the short term, possibly in part as a result of forced liquidations to raise cash. Over the medium term, however, we expect prices to recover. Among safe-haven currencies, the Swiss franc, the US dollar and the Japanese yen are likely to remain in demand during periods of market turbulence.