--- title: October Market Review description: "Markets in Retreat: AI Spending and Geopolitical Pressures Squeeze Global Portfolios" image: https://blog.clarendonprivate.com/hubfs/Untitled%20design%20(37).png --- [Skip to Content](https://blog.clarendonprivate.com/october-market-review#body) [![Clarendon Private logo](https://blog.clarendonprivate.com/hs-fs/hubfs/clarendon-private-logo.webp?width=600&height=100&name=clarendon-private-logo.webp)](https://clarendonprivate.com/) - [About](https://www.clarendonprivate.com/about) Toggle children for About - [Our Team](https://www.clarendonprivate.com/our-team) - [Who We Serve](https://www.clarendonprivate.com/who-we-serve) Toggle children for Who We Serve - [Families & Individuals](https://clarendonprivate.com/who-we-serve/families-and-individuals/) - [Endowments & Foundations](https://clarendonprivate.com/who-we-serve/endowments-and-foundations/) - [Services](https://clarendonprivate.com/services/) Toggle children for Services - [Investments](https://clarendonprivate.com/services/investments/) - [Wealth Planning](https://clarendonprivate.com/services/wealth-planning/) - [Private Banking](https://clarendonprivate.com/services/private-banking/) - [Insights](https://blog.clarendonprivate.com/our-insights) Toggle children for Insights - [Our Insights](https://blog.clarendonprivate.com/our-insights) - [Thought Leadership](https://clarendonprivate.com/thought-leadership/) - [News & Commentary](https://blog.clarendonprivate.com/our-insights-news-and-commentary) - [Contact](https://clarendonprivate.com/contact/) [Skip to Content](https://blog.clarendonprivate.com/october-market-review#body) [![Clarendon Private logo](https://blog.clarendonprivate.com/hs-fs/hubfs/clarendon-private-logo.webp?width=300&height=50&name=clarendon-private-logo.webp)](https://clarendonprivate.com/) Click to open Menu Menu Close Menu Close Close Menu Close - [About](https://www.clarendonprivate.com/about) Toggle children for About - [Our Team](https://www.clarendonprivate.com/our-team) - [Who We Serve](https://www.clarendonprivate.com/who-we-serve) Toggle children for Who We Serve - [Families & Individuals](https://clarendonprivate.com/who-we-serve/families-and-individuals/) - [Endowments & Foundations](https://clarendonprivate.com/who-we-serve/endowments-and-foundations/) - [Services](https://clarendonprivate.com/services/) Toggle children for Services - [Investments](https://clarendonprivate.com/services/investments/) - [Wealth Planning](https://clarendonprivate.com/services/wealth-planning/) - [Private Banking](https://clarendonprivate.com/services/private-banking/) - [Insights](https://blog.clarendonprivate.com/our-insights) Toggle children for Insights - [Our Insights](https://blog.clarendonprivate.com/our-insights) - [Thought Leadership](https://clarendonprivate.com/thought-leadership/) - [News & Commentary](https://blog.clarendonprivate.com/our-insights-news-and-commentary) - [Contact](https://clarendonprivate.com/contact/) - [Home](https://blog.clarendonprivate.com/) - [Blog](https://blog.clarendonprivate.com) --- - 9 min read # October Market Review Markets in Retreat: AI Spending and Geopolitical Pressures Squeeze Global Portfolios - [By: Clarendon | PRIVATE](https://blog.clarendonprivate.com/author/clarendon-private) - October 15, 2026 ![](https://blog.clarendonprivate.com/hubfs/Untitled%20design%20(37).png) SHARE [Share to Facebook](http://www.facebook.com/sharer.php?u=https%3A%2F%2Fblog.clarendonprivate.com%2Foctober-market-review) [Share to LinkedIn](http://www.linkedin.com/shareArticle?url=https%3A%2F%2Fblog.clarendonprivate.com%2Foctober-market-review) [Share to Pinterest](http://pinterest.com/pin/create/button/?url=https%3A%2F%2Fblog.clarendonprivate.com%2Foctober-market-review&media=https%3A%2F%2F44520401.fs1.hubspotusercontent-na1.net%2Fhubfs%2F44520401%2FUntitled%2520design%2520%252837%2529.png) [Share through email](mailto:%20?subject=October%20Market%20Review&body=https%3A%2F%2Fblog.clarendonprivate.com%2Foctober-market-review%0AMarkets%20in%20Retreat%3A%20AI%20Spending%20and%20Geopolitical%20Pressures%20Squeeze%20Global%20Portfolios%0A) ## *Key Observations* - *September brought broad weakness across financial markets as persistent inflation, the war in Iran, and the Federal Reserve's 25-basis-point rate hike drove Treasury yields sharply higher and pressured both stocks and bonds.* - *U.S. and international equities generally moved lower, with small-caps and developed non-U.S. markets under increased pressure. Emerging markets were more resilient, while commodities were the only major asset class to advance.* - *The AI capital-spending cycle remains a meaningful source of economic and earnings momentum, but depleted free cash flow is pushing more companies toward debt financing and increasing scrutiny of leverage, borrowing costs, and the durability of future returns.* - *The Fed faces an unusually difficult policy backdrop: AI infrastructure spending may remain relatively insensitive to modest changes in borrowing costs, while geopolitical instability and higher energy prices are adding inflationary pressure that tighter financial conditions cannot directly resolve.* ### Market Recap September was marked by broad weakness across financial markets as investors continued to contend with a sell-off in bonds, lingering uncertainty surrounding inflation, and the ongoing war in Iran. As expected, the Federal Reserve moved forward with a 25-basis-point rate hike and signaled that additional hikes may be necessary to contend with a recent resurgence of inflationary pressure. Bond yields surged throughout the month, with the benchmark 10-year Treasury yield rising by over 50bps and ending the month just below 5.30%, a level not seen since 2007. With financing costs moving starkly higher and geopolitical uncertainty remaining elevated, most major equity and fixed income benchmarks shed value during September. Commodities were the only major asset class to post a positive monthly return, supported by elevated oil prices. ![October 26 Market Recap](https://blog.clarendonprivate.com/hs-fs/hubfs/October%2026%20Market%20Recap.png?width=391&height=251&name=October%2026%20Market%20Recap.png) U.S. equities were mixed but generally softer. The S&P 500 declined 0.3% through September, though the index remained up 12.7% year-to-date. Small caps, which tend to carry more leverage and are thus more impacted by rising interest rates, experienced larger losses, with the Russell 2000 falling 5.3% during the month. Despite the decline, small caps retained their advantage over large caps, ending the month with a 13.7% year-to-date gain. International market returns also dwindled. The MSCI EAFE Index returned -3.1% in September, reducing its year-to-date advance to 10.3%. Emerging markets proved more resilient, with the MSCI Emerging Markets Index declining by a modest 0.6%. Emerging Markets remain the strongest equity performer for the year, up 23.4% through September. Fixed income also came under pressure during the month as markets firmly priced in a Fed hiking cycle and began demanding a meaningfully larger term premium. The Bloomberg U.S. Aggregate Bond Index fell 2.6% and has now returned -2.9% year-to-date. Credit did not fare much better, as high yield bonds declined 2.5%, though the Bloomberg U.S. Corporate High Yield Index held onto a slight 0.1% year-to-date. Commodities were the month's lone advancer, as the Bloomberg Commodity Index gained 0.6% and extended its year-to-date return to 32.9%. **What's Next for the AI Capex Cycle?** The AI capex boom has been a key driver of equity market performance over the past 24 months and continues to show no sign of abating. According to Oxford Economics, cumulative AI-related investment has exceeded 2% of U.S. GDP over the past three years[\[1\]](https://blog.clarendonprivate.com/october-market-review#_ftn1), while the International Monetary Fund estimates that AI-related technology investment added 0.5 percentage points to U.S. GDP growth in 2025[\[2\]](https://blog.clarendonprivate.com/october-market-review#_ftn2). The impact on corporate earnings has been even more profound, with the S&P 500 expected to produce a third consecutive quarter of year-over-year earnings growth in excess of 25%. The tremendous momentum in earnings has been a key pillar of support for equity markets despite a backdrop of tightening financial conditions and elevated geopolitical uncertainty. It has also allowed equity markets to post double digit returns in 2026 without a commensurate expansion in valuation multiples. ![October 26 S&P YoY](https://blog.clarendonprivate.com/hs-fs/hubfs/October%2026%20S%26P%20YoY.png?width=703&height=325&name=October%2026%20S%26P%20YoY.png) The scale of the AI capex boom is significant in a historical context, and the incredible explosion in earnings growth that has accompanied it introduces an important distinction from the past. However, the conversation is now maturing, and the question is shifting from how much companies will spend on AI infrastructure to whether that spending will earn attractive returns and how it will be financed. Consensus expectations for free cash flow across the major hyperscalers (massive technology and cloud service providers) have now collapsed into negative territory due to AI-related capital expenditures. With available free cash flow depleted, companies are increasingly turning to debt markets as a source of capital. Keen observers of credit markets will note that credit spreads for the largest cloud and AI companies have widened relative to other high-quality corporate borrowers. Financing costs remain manageable for investment grade issuers, but with the Fed now entering a hiking cycle, markets are becoming more discerning about rising leverage, negative free cash flow and an uncertain payback on rapidly depreciating assets. ![Screenshot 2026-10-15 123619](https://blog.clarendonprivate.com/hs-fs/hubfs/Screenshot%202026-10-15%20123619.png?width=711&height=386&name=Screenshot%202026-10-15%20123619.png) None of this suggests an imminent slowdown, but it reinforces the need for investors to think critically about risks and maintain proper balance in portfolios. Debt can bridge the gap between construction and future revenue, but it can also make that gap less forgiving. Interest and principal payments remain due even if customer adoption takes longer than expected or the anticipated productivity gains do not materialize. As the AI capex boom continues to evolve, investors need to strike the difficult balance of participation and discipline, rather than committing to the binary choice between embracing AI and completely avoiding it. Diversification should be viewed through multiple lenses. A chipmaker, a cloud provider, and a data-center lender can respond differently to technological change while still depending on the same spending cycle. Maintaining exposure to different industries, geographies, and sources of return can reduce reliance on a single outcome. Valuation remains the final filter. Even excellent businesses can produce disappointing returns when their prices leave little room for execution risk or changing expectations. Investors should ask which assumptions about growth, margins, adoption, and capital intensity are necessary to justify current market pricing. The AI opportunity can continue to develop while the economic backdrop becomes less forgiving, but maintaining exposure without abandoning discipline will be paramount.   Outlook  The remainder of 2026 will bring multiple challenges for markets. The Fed will meet two more times before the year ends, and current market pricing suggests at least one more hike is still to come. The Fed remains in a difficult position, as the economy is being influenced by forces that sit somewhat outside the traditional framework of monetary policy. The secular AI infrastructure buildout continues to drive substantial capital expenditures across the technology ecosystem, providing a source of economic momentum that may be relatively insensitive to modest changes in borrowing costs. Simultaneously, geopolitical instability and higher energy prices are creating inflationary pressures that cannot be easily addressed through tighter financial conditions. November’s midterm elections also present uncertainty that markets must contend with. Republicans are clinging to a small majority in the House and Senate, but risk losing control of both. History suggests that the Presidents’ party tends to lose ground during midterm election cycles, and prediction markets are currently suggesting that this cycle will not differ from the norm. The good news for investors is that markets tend to perform well after the conclusion of the midterm elections, bolstered by the clarity that follows. More importantly, the factors that ultimately drive long-term equity market returns remain intact. In conjunction, the recent surge in bond yields provides an attractive entry point within Fixed Income across treasuries, municipals and corporate bonds. As the economy stays resilient, employment conditions remain healthy, and corporate earnings growth continues to exceed expectations in many sectors. While the path forward is unlikely to be free of volatility, we move ahead with cautious optimism as we enter the fourth quarter. Sources [\[1\]](https://blog.clarendonprivate.com/october-market-review#_ftnref1) Oxford Economics, “Is an AI downturn unavoidable?”, September 29, 2026. [\[2\]](https://blog.clarendonprivate.com/october-market-review#_ftnref2) International Monetary Fund, 2026 Annual Report, “AI: Deployment and Disruption.” Disclosures The information provided is illustrative and for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor. The views expressed in this commentary are subject to change based on market and other conditions. This document may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Certain targets within the presentation are estimates based on certain assumptions and analysis made by the advisor. There is no guarantee that the estimates will be achieved. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Clarendon Private’s strategies are disclosed in the publicly available Form ADV Part 2A. Diversification does not ensure a profit or guarantee against loss. Asset Allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Comparisons to any indices referenced herein are for illustrative purposes only and are not meant to imply that actual returns or volatility will be similar to the indices. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income. You cannot invest directly in an Index. • S&P 500 is a capitalization-weighted index designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. • Russell 2000 consists of the 2,000 smallest U.S. companies in the Russell 3000 index. • MSCI EAFE is an equity index which captures large and mid-cap representation across Developed Markets countries around the world, excluding the U.S. and Canada. The index covers approximately 85% of the free float-adjusted market capitalization in each country. • MSCI Emerging Markets captures large and mid-cap representation across Emerging Markets countries. The index covers approximately 85% of the free-float adjusted market capitalization in each country. • Bloomberg U.S. Aggregate Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. • Bloomberg U.S. Corporate High Yield Index covers the universe of fixed rate, non-investment grade debt. Eurobonds and debt issues from countries designated as emerging markets (sovereign rating of Baa1/BBB+/BBB+ and below using the middle of Moody’s, S&P, and Fitch) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. • FTSE NAREIT Equity REITs Index contains all Equity REITs not designed as Timber REITs or Infrastructure REITs. • Bloomberg Commodity Index is calculated on an excess return basis and reflects commodity futures price movements. The index rebalances annually weighted 2/3 by trading volume and 1/3 by world production and weight-caps are applied at the commodity, sector and group level for diversification. Clarendon Private, LLC (“Clarendon Private”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Clarendon Private and its representatives are properly licensed or exempt from licensure. 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