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Market News
Market analysis
October 26, 2026
Energy supply risks and questions about artificial intelligence spending drove market volatility last week, but business growth, earnings, bonds and income-producing real assets remained resilient.
Number of the week
7.3%
The decline in pending home sales in September compared to a month earlier.
Term of the week
Pending Home Sales Index – A measure created by the National Association of Realtors that tracks home sales in which a contract is signed but the transaction has not yet closed. The index is a leading indicator of future existing home sales.
Quote of the week:
Earnings strength is extending beyond the largest technology companies. Companies reporting third quarter results through Friday represent a broad range of industries, including aerospace and defense, financials, healthcare, consumer staples and transportation. Profit margins remain strong, and earnings leadership continues to widen. This broader contribution reduces the market’s reliance on a small group of companies, although elevated expectations still leave little room for disappointing results or cautious forecasts.
Terry Sandven, Portfolio Manager, Chief Equity Strategist, U.S. Bank
U.S. Bank Asset Management Group
Daniel Farley, CFA
Chief Investment Officer
Kaush Amin, CFA
Head of Private Market Investing
Chad Burlingame, CFA, CAIA
Co-Head of Public Markets Manager Research
Thomas Hainlin, CFA
National Investment Strategist
Robert Haworth, CFA
Senior Investment Strategy Director
William Merz, CFA
Head of Capital Markets Research
William Northey, CFA
Senior Investment Director
Terry Sandven
Chief Equity Strategist
Global economy
Quick take: Ongoing energy supply risks increased uncertainty last week, even as business activity continued to expand. High mortgage rates weigh on housing demand, construction and builder confidence.
- The Middle East conflict kept pressure on global energy supplies. Rising oil prices contributed to market volatility last week and complicated the inflation and interest rate outlook. Reports indicated the potential for additional military operations against Iran after the November midterm elections. Iran-backed Houthi militants also launched further attacks on Saudi Arabia, prompting the national oil company to evacuate its headquarters. Additional disruptions could raise transportation and production costs for businesses and households. Although oil supplies continued to reach the market, the threat of further attacks kept prices elevated and increased uncertainty about future availability.
- Global business activity continued to expand. A preliminary October survey of U.S. companies showed that manufacturing and services activity cooled slightly from September but still grew at a solid pace. Business activity also expanded overseas, although more slowly than in the U.S. Growth eased in the eurozone and improved in the United Kingdom and Japan. The surveys indicate that the global economy continues to withstand higher energy costs. New orders and output remain consistent with continued growth, even as companies navigate higher input and financing costs.
- High mortgage rates continue to restrain housing activity. Homebuilder confidence fell to a 14-year low as borrowing costs limited buyer demand and inventories of new homes remain elevated. Builders are responding with incentives and price reductions that pressure profits: 43% cut prices, while about two-thirds offered sales incentives in October. Housing starts fell 5.2% in September from August, and pending sales of existing homes dropped 7.3%. Building permits also declined, though less than forecast. Weak housing activity can also limit purchases of furniture, appliances and other goods commonly associated with home sales.
Equity markets
Quick take: Equity results diverged last week, with Communication Services and overseas markets declining, while smaller U.S. companies and most S&P 500 sectors advanced. Earnings remain strong, but investors are demanding clearer returns from artificial intelligence spending.
- U.S. stock performance broadened despite a modest S&P 500 decline. The S&P 500 slipped 0.5% last week as Communication Services fell 6.2% and Information Technology declined 0.2%. Eight of the index’s 11 sectors advanced, led by Energy, Healthcare, Real Estate, Utilities and Financials. Mid-cap stocks gained 0.9%, and small-company stocks rose 2.0%. Developed international markets fell 1.5% while emerging markets declined 2.6%.
- Earnings strength is extending beyond the largest technology companies. Companies reporting third quarter results through Friday represent a broad range of industries, including aerospace and defense, financials, healthcare, consumer staples and transportation. Profit margins remain strong, and earnings leadership continues to widen. This broader contribution reduces the market’s reliance on a small group of companies, although elevated expectations still leave little room for disappointing results or cautious forecasts.
- Profit forecasts continue to support the market. Analysts expect S&P 500 earnings to grow about 33% in 2026 and 16% in 2027. The index trades at roughly 21 times expected 2026 earnings and 18 times expected 2027 earnings, above the 35-year average of 16.8 times next-12-months earnings. Strong profit growth helps justify those prices, but disappointing results could prompt larger declines.
- Third quarter results have met or modestly exceeded high expectations. Through Friday, 24% of S&P 500 companies had reported results. Sales rose 11.8%, close to the 12.1% estimate, while earnings grew 38.0%, above the 29.4% forecast. Consumer and business spending remain resilient, and companies reported no widespread deterioration in loan performance. Another 36% of index companies plan to report this week.
- Investors are seeking evidence that artificial intelligence spending will generate returns. Meta Platforms reported 26% revenue growth, but its first quarter of negative free cash flow and plans to spend $135 billion to $145 billion in 2026 overshadowed those results. Demand for artificial intelligence remains strong. Investors are increasingly questioning how quickly large investments in data centers, computing equipment and related infrastructure will produce sustainable profits and cash flow.
Bond markets
Quick take: Treasury yields fell last week as high energy costs raised growth concerns and investors favored higher-quality bonds. Markets expected the Federal Reserve (Fed) to hold rates steady at its October meeting.
- Treasury yields fell last week, with the 10-year yield dropping below 5% for the first time in weeks. Investors expressed concerns around economic growth despite continued corporate spending, as oil prices rose. Falling expectations for rate hikes explain a large portion of the move in Treasury yields, which fell to their lowest levels in a month. Longer-term Treasuries, whose prices are most sensitive to yield changes, gained 1.6% and short-term Treasuries rose 0.2%. Overseas, yields on French government debt reached 5% for the first time since 2002 due to deepening concerns about government finances.
- Most bonds categories gained as yields fell, though high yield corporate bonds and bank loans lagged. Municipal bonds performed especially well last week, with investment-grade bonds rising 1.1% and high yield bonds gaining 1.0%. Investment-grade corporate bonds rose 0.4%. In contrast, riskier high yield corporate bonds rose 0.3% and bank loans fell 0.3%, as spreads, the extra yield investors demand to hold lower-quality debt, rose.
- Investors trimmed expectations for Fed rate hikes ahead of this week’s policy meeting. After raising rates in September for the first time in more than three years, investors expect policymakers to hold steady this week. The odds of a hike in December have fallen over the past month to roughly 75% from 100%. Markets now anticipate about two to three additional hikes through 2027, slightly fewer than a week ago.
Real assets
Quick take: Lower Treasury yields lifted publicly traded real estate and infrastructure last week. Broad commodities declined, with steep losses in natural gas and precious metals outweighing higher oil prices.
- Publicly traded real estate advanced across most property types. Real estate investment trusts gained 1.3% last week as lower Treasury yields eased financing concerns and made property income more competitive with bonds. Residential, office and self-storage properties each rose more than 3%, while retail properties gained 2.2%. Healthcare properties advanced 1.2% and are up 21.0% this year. Data centers and telecommunications towers each fell 2.9%. Broad real estate investments have returned 11.3% in 2026. The difference between property types showed that lower yields supported the broader group, while technology-related concerns weighed on data centers and towers.
- Infrastructure gained as utilities and energy networks advanced. Global infrastructure rose 1.3% last week. Utilities gained 0.9% as Treasury yields declined, while North American energy infrastructure added 1.3% and has returned more than 28% this year. Ongoing threats to Middle East energy supplies increased attention on North American pipelines and related networks. Industrial infrastructure companies fell 1.9% and are down 4.5% over the past month, showing the benefit of combining businesses driven by different economic forces. Utilities and pipelines offered steadier income, while industrial businesses remained more sensitive to changing expectations for economic growth.
- Oil gains could not offset losses in natural gas and metals. Broad commodities fell 0.6% last week. Brent crude oil, the global benchmark, gained 6.2%, and West Texas Intermediate crude rose 1.8% as Middle East supply concerns persisted. Natural gas dropped 15.8%, while gold fell 4.0%, silver declined 5.9% and copper slipped 1.2%. Broad commodities are up 39.3% this year, largely because of oil. Their varied results highlight the importance of diversification within commodity investments. Individual commodity prices responded to separate supply and demand conditions, producing a wide range of weekly results despite persistent inflation concerns.
This information represents the opinion of U.S. Bank. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.
Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.
Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The Pending Home Sales Index is a measure created by the National Association of Realtors that tracks home sales in which a contract is signed but the transaction has not yet closed. The index is a leading indicator of future existing home sales.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities is subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer’s ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).
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