Overview
Introduction
Globally, stock experienced modest declines in October. Amidst the backdrop, there was a sharp rotation out of AI-linked technology companies. Doubts resurfaced whether the large amounts of spending in AI infrastructure will pay off. Companies that have been relying on borrowed money to fund this expansion felt the most pressure, as increasing financing costs from higher interest rates and debt loads weakened financial positions. Overall, Economic activity proved resilient, however. Oil prices climbed, as tensions in the Middle East escalated. High-quality government bonds also performed strongly, as investors looked to more stable investments.
Developed market stocks slipped just 0.8% over the month, in USD terms (MSCI, MSCI World Index Factsheet, 2/11/26). The weakness was due to a handful of the largest US technology companies seeing downward pressure, outweighing gains across other sectors. Emerging markets took the biggest hit from the rotation out of AI, falling 8.0%, driven by technology-heavy Asian markets (MSCI, MSCI EM Index Factsheet, 2/11/26). AI CAPEX concerns, and competition from the Chinese memory chipmaker CXMT, placed pressure on the region’s returns and currencies.
Politics played a role in certain markets. In France, ongoing uncertainty surrounding the country’s public finances and political direction continued to weigh on its stock market. In Brazil, equities fell following an unexpected outcome in the presidential election.
Bond returns were strong over the month, successfully providing a cushion from stock turbulence. The rally was a result of investors looking for safe havens from technology-driven volatility, as usually economic resilience and rising oil prices put upward pressure on yields. The Bloomberg Global Aggregate Index rose 1.4%, in US dollar terms, as yields eased back from the highs reached in September (Bloomberg, Bloomberg Global Aggregate Index, 2/11/26).
Stocks & Commodities
Global stocks fell 0.8% over the month, masking a larger rotation in market leadership. Energy, up 12.8%, led returns due to rising oil prices, where Brent Crude reached a six-month high following three weeks of gains (JPMorgan, Review of markets over October 2026, 2/11/26). Defensive sectors such as consumer staples (+10.7%), healthcare (+9.9%), and utilities (+7.9%), followed closely, while technology and communication services fell 7.0% and 13.5% respectively (JPMorgan, Review of markets over October 2026, 2/11/26). The shift also showed in style factors, value stocks outperformed growth stocks by almost 7%, up 2.7% against a decline of 4.2% (MSCI, MSCI World Growth & Value Index Factsheets, 2/11/26). The gains in many other sectors showed that the broad market could stay resilient under technology weakness.
The gap between sector returns showed clearly in the US. The standard S&P 500 index fell 0.9%, while the equal weighted index grew 4.90% (Yahoo Finance, S&P 500 (^GSPC) Historical Data & S&P 500 Equal Weighted (^SPXEW) Historical Data, 2/11/26). A small group of large technology-related firms held headline figures back. Among those companies, Nvidia (-10.4%), Broadcom (-7.2%), Alphabet or Google (-18.7%) and Meta (-15.2%) declined, as investors took a hard look at their elevated AI-related spending (JPMorgan, Review of markets over October 2026, 2/11/26). Quarterly earnings reports sharpened that focus. Meta reported a record revenue of $64.6 billion, up 26% and above expectations, however capital expenditure consumed more than half of that revenue in the quarter and turned Meta’s free cash flow negative for the first time in over a decade (SEC EDGAR, Meta Platforms, Inc. Quarterly Report, 2/11/26). Alphabet faced a similar reaction, with shares falling more than 10%, following its quarterly report (Yahoo Finance, Alphabet Inc (GOOG) Historical Data, 2/11/26). Within the technology sector itself, the experience varied widely. Global semiconductor stocks fell 13.7%, while software companies increased by 0.9% (JPMorgan, Review of markets over October 2026, 2/11/26).
Canadian markets held firm as the TSX/S&P returned 1.2% in October (Investing, S&P/TSX Composite Index Historical Data, 2/11/26), outperforming the S&P 500, with a smaller exposure to technology and a larger weight in energy. Similar sector dynamics appeared, with most sectors in positive territory and defensive sectors outperforming. Materials were the laggard, declining 13.1%, followed by small caps returning -4.7% (National Bank, CIO Asset Allocation Strategy, 2/11/26).
Across the Atlantic, the UK followed the TSX/S&P’s outperformance, with the FTSE 100 index rising 1.1% (returnsview, FTSE 100 Index (FTSE), 2/11/26). This was largely due to the UK’s large share of energy producers and defensive businesses, which was the right exposure for the cautious tone. Continental Europe also held steady, with the MSCI Europe ex-UK up 0.7% led by defensive sectors (MSCI, MSCI Europe ex-UK index factsheet, 2/11/26). France remained a weak spot, as political uncertainty and questions regarding the country’s budget deficit pushed up French borrowing costs. European banks fell as a result, with the financial sector declining 5.4%, as investors worried that the French rising government borrowing costs and political uncertainty could put pressure on borrowing costs across the continent. (JPMorgan, Review of markets over October 2026, 2/11/26).
In emerging markets, the damage was centred on Asia, as the MSCI Asia ex-Japan fell 8.2%, due to growing worries about AI investment and rising competition from Chinese companies (MSCI, MSCI Asia ex-Japan Index Factsheet, 2/11/26). Markets dominated by chipmakers and other technology firms, like Korea (-15.6%) and Taiwan (-8.4%), were hit the hardest (JPMorgan, Review of markets over October 2026, 2/11/26). The Nikkei 225 fell 5.2% and the Taiwanese TAIEX also declined 6.5% (Yahoo finance, Nikkei 225 (^N225) Historical Data, 2/11/26 and Taiwan Index, Taiwan Stock Exchange Capitalization Weighted Stock Index, 2/11/26).
Latin America also experienced a sell-off but driven by politics rather than technology, with the MSCI EM Latin America down 7.6% in US dollar terms (MSCI, MSCI EM Latin America Index Factsheet, 2/11/26). Brazil led the decline after the unexpected outcome of its presidential election. The Ibovespa, Brazil’s main stock index, plunged 13.88% that Monday, leaving Brazilian stocks down by almost 20% from their monthly highs (Yahoo Finance, IBOVESPA (^BVSP) Historical Data, 2/11/26).
Commodities provided solid returns over the month, with the GSCI Commodities index up 4.8% (Investing, S&P GSCI Commodity Total Return, Historical Data, September 29, 2026). Brent Crude rose to a six-month high of $118 per barrel, while WTI price increased by 17.3%, as tensions in the Middle East remained elevated (National Bank, CIO Asset Allocation Strategy, 2/11/26). Gold fell 6.4%, as interest rate expectations, inflation, and geopolitical uncertainty weighed on its returns, despite it normally seeing inflows during times of market stress.
Fixed Income
For bond investors, October brought welcome a relief. Government bonds rallied across developed markets, after yields reached highs in September. A large part of the move came from investors looking for safer, higher-quality assets, following the sell-off in technology and AI stocks. US government bonds led the way, with a 2.4% return, followed by Japan (+1.8%), Germany (+1.7%) and the UK (+1.6%) (JPMorgan, Review of market over October 2026, 2/11/26). US Treasury yields fell, as the Federal Reserve reduced expectations of a rate increase during the month.
France was a clear outlier. The continuous stress of repeated budget deficits and a growing government debt load raised questions about whether the country could steady its finances. French bonds have been under pressure for most of 2026, but those questions came to a new forefront early in the month, after the 2027 budget was presented, and bond investors were less than impressed. French 10-year bond yields rose to their highest levels in years following student led protests regarding the proposed budget. The unrest intensified France’s fiscal and political challenges.
The UK had a fiscal focus in October as well, relative to the government’s 2026 Autumn Budget, with Chancellor John Healey restating the government’s commitment to its fiscal rules. There were few surprises in the announcement, and the market reaction was relatively steady. The 10-year gilt yield edged slightly lower.
Canadian fixed income sharply rebounded in October, with the ICE Canada Universe Bond Index up 1.5% over the month (Morningstar, iShares Core Canadian Universe Bond Index ETF, performance, September 29, 2026). Even though the Bank of Canada chose to hike rates for the first time since 2023, Canadian high-quality bonds provided a source of stability, with long term bonds returning 2.9%, and mid term bonds returning 1.5%. (National Bank, CIO Asset Allocation Strategy, 2/11/26).
The theme for the bond market over the month was that the higher the quality, the better. Globally, investment grade credit returned 1.3%, inflation linked bonds gained 1.8% and emerging market debt rose 1.4% (Bloomberg, Bloomberg Global Aggregate – Corporate, 2/11/26; Bloomberg, Bloomberg Global Inflation Linked, 2/11/26 and JPMorgan, J.P. Morgan EMBIG, 2/11/26). High yield was less resilient; US high yield remained flat and euro high yield fell 1.0%, as worries surrounding France’s situation weighed on credit ratings (BofA/Merril Lynch, BofA/Merril Lynch US HY Constrained, 2/11/26 and BofA/Merril Lynch, BofA/Merril Lynch Euro Non-Financial HY Constrained, 2/11/26). Strain was felt amongst lower-quality AI companies with heavy debt. Higher borrowing costs continued to put pressure on companies that rely on a constant stream of debt to fill the gap between capital expenditure and future cashflows.
Conclusion
October saw dispersion in sectors. A sharp decline in a handful of large technology companies was balanced by gains across other sectors. US equal weighted indexes moved higher, and high-quality government bonds showed strength amidst the turbulence. Going forward, the environment may become more selective. AI spending is unfolding at the same time as large-scale government borrowing and infrastructure investment, all of which are competing for capital. Bond markets could become pickier about who they fund, a shift that became noticeable over the month, when looking at French Sovereign bonds and the neocloud debt market. Overall, October brought a renewed relevancy to a well-diversified approach to investing and how it can keep your portfolio on track, even when dominant market themes stumble.
