October 2026 Market Update: Strong Data, Nervous Markets

October gave investors two different pictures. Much of the third-quarter data that arrived during the month was strong. The markets that trade every day were nervous.

The economy grew at a 3.4% annualized rate in the third quarter, and S&P 500 companies were on track, according to FactSet, for earnings growth of about 30%. Even so, the Nasdaq fell more than 5%, in part as investors weighed what the largest technology companies are spending on artificial intelligence, and credit spreads widened.

The Federal Reserve held its policy rate at 3.75% to 4.00% on October 28, with two voters preferring a quarter-point increase. Treasury yields fell over the month. In September we set out why we think rates are likely to stay higher while federal spending runs well above its historical share of the economy. One month’s decline does not change that view.

The Public Market, Briefly

On a price-return basis, the S&P 500 fell 0.93% in October and the Nasdaq 5.30%, while the Dow rose 1.70%. That leaves them up 10.73%, 9.44% and 7.71% for the year. The S&P 500 and the Nasdaq both set record closes early in October and ended the month at their lowest close of it. The decline was concentrated in the largest technology companies: an equal-weighted version of the S&P 500, in which each company counts the same, rose over the month. The MSCI EAFE Index returned −0.74% and the MSCI Emerging Markets Index −8.05%, both net in U.S. dollars, leaving them up 9.52% and 13.45% for the year.

Earnings remain strong, and less concentrated. With 60% of S&P 500 companies reporting by October 30, FactSet’s blended third-quarter growth rate was 30.2%, and 82% had beaten earnings estimates. FactSet’s group of seven large technology-related companies is on track to report lower growth than the other 493 for the first time since the fourth quarter of 2022. The forward price-to-earnings ratio was 18.7, below its ten-year average of 19.1 and down from 22.9 a year earlier, as earnings estimates rose faster than prices.

The pressure point is AI spending. Some of the largest technology companies reported negative free cash flow, for the quarter or the trailing twelve months, as spending on AI infrastructure ran ahead of the cash their operations produced, and at least one said its spending would keep rising next year. Much of the coverage of the month’s late selling focused on that spending.

The economy. The government’s advance estimate puts third-quarter growth at 3.4% annualized, the fastest since the third quarter of 2025, with consumer spending up at a 3.8% rate. Inventory building added 1.6 percentage points, and net exports subtracted 3.3 as imports surged and exports fell. The PCE price index rose 3.6% in the year to September, and 3.1% excluding food and energy.

Treasury yields gave back part of September’s rise. The 10-year Treasury yield fell from 5.29% to 4.94% and the 30-year from 5.64% to 5.31%.

Lower Yields, Wider Spreads

Lower Treasury yields did not mean easier credit. High-yield corporate bond spreads widened over the month and ended October near their highest level of the year. Freddie Mac’s 30-year fixed mortgage rate was 7.24% on October 29, a little below where the month began and about a point higher than a year earlier.

Private Markets: The Third-Quarter Data Arrives

Our August update set out three arguments in full, on slow distributions, the exit channel and repurchase limits. We refer to them rather than restate them. Most third-quarter private-market data was published during October, so every sleeve updates this month. Where providers disagree, we say so.

Private Equity: Deals and Exits Up From the Second Quarter

PitchBook’s full third-quarter report puts U.S. private equity deal value at $233.8 billion across 2,467 deals. That is up 20.9% from the second quarter but down 30.4% from a year earlier. Exit value rose about 50% from the second quarter, lifted by a few large sales. U.S. fundraising reached $221.4 billion across 350 funds through September, below last year’s pace (PitchBook data, as reported by KPMG).

Semi-Liquid Structures: Redemption Requests Eased

Our practice has not changed, and we restate it as we did last month. We use semi-liquid, open-ended private equity structures alongside traditional drawdown funds for clients where private equity is appropriate. A repurchase limit is better understood as a protection for the investors who stay, and we would not invest client capital in an open-ended private markets structure that lacked one. We do not generally submit redemptions during periods of stress; we use the liquidity during periods of strong inflows. It is not a substitute for liquidity in the portfolio, and we would not present it as one.

Redemption requests eased. The available market-wide data comes from non-traded BDCs, a type of private credit fund. Requests to redeem fell from the second quarter to the third but still ran at about twice the typical 5% quarterly limit in aggregate, and about 40% of requested dollars were paid (Robert A. Stanger & Co.).

Venture: AI Still Draws Most of the Money

Third-quarter global venture funding was $159 billion according to Crunchbase, $170.9 billion according to KPMG using PitchBook data, and $187.2 billion according to CB Insights. The providers differ on what counts, including debt financing and secondary sales. Artificial intelligence took 65.9% of U.S. venture dollars in the quarter, down from 84.1% in the second (PitchBook-NVCA).

Private Credit: The Default Rate Depends on How You Count

Private credit is lending by investment funds rather than banks. How stressed it looks depends on what counts as a default. Fitch’s broad measure counts stressed maturity extensions, interest deferrals and switches to paying interest in kind as defaults, and it reached a record 6.3% for the twelve months to September, up from 6.0% at mid-year. About 88% of the defaults it counted were of those kinds. Narrower measures are lower and fell in the latest period: Proskauer’s index of senior-secured and unitranche loans fell to 2.41% for the third quarter from 2.51%, and KBRA DLD’s twelve-month rate fell to 2.0% in September from 2.2% in August. Direct lending volume tracked by KBRA DLD fell to its lowest quarterly level since the second quarter of 2023.

What we’re doing about it. Numbers like these raise one question: what is actually inside the funds our clients own? We focus our private credit allocations on experienced managers that have passed our due diligence, and we actively review what their portfolios hold: which industries they lend to, what kinds of assets back the loans, and where strain is starting to show. Where we see concentration in the industries and asset types under the most pressure, we work to limit our clients’ exposure to it. No review makes private credit risk-free, and we’ll keep reporting what we see here as the data comes in.

Real Estate: Prices Little Changed in September, Distress Elevated

Distress indicators stayed high. Trepp’s CMBS special servicing rate reached 11.49% in September, its highest since February 2013. KBRA’s measure of CMBS delinquency was 7.7% in October, down slightly from September.

Prices barely moved in September. Green Street’s Commercial Property Price Index slipped 0.1% in the month and was up 4.7% from a year earlier.

Infrastructure and Energy: Oil Stayed High, Hormuz Stayed Narrow

Physical oil rose above its September peak, then eased. EIA’s daily Brent spot price reached $135.51 on October 2 and was $120.15 on October 30. Futures traded lower: the expiring December contract settled at about $117.60 on October 30 and the next contract at about $113.40. On November 2, futures fell more than 7% after Iran signaled openness to talks.

Forecasters disagree on demand. In their October reports, the International Energy Agency expected world oil demand to fall by 2.6 million barrels a day this year, the EIA by 2.0 million, and OPEC to rise by 0.2 million.

Hormuz: more attacks, traffic still far below normal. Counts of ships through the Strait differ widely by source and method. IMF PortWatch data show about 3.5 transits a day from October 1 to 25, against about 3.7 in September. The UK Maritime Trade Operations center reported about 250 transits in the week to October 16, down from about 275 the week before. By either count, traffic remains far below pre-conflict levels. Reported attacks rose: a think-tank tally cited by Reuters counted more attacks in October than in any earlier month of the conflict, and UKMTO has said its own counts are incomplete. Houthi forces claimed attacks on Saudi energy facilities, not all confirmed by Saudi authorities. Qatari-mediated talks on ending the conflict continued into November without a settlement.

Infrastructure. Fundraising rebounded in the third quarter, but two industry trackers disagree on size: $65.5 billion according to Infralogic, more than $45 billion according to Infrastructure Investor. LevelTen’s third-quarter index shows North American P25 solar power purchase agreement prices up 4.9% from the second quarter and wind roughly flat.

The Questions This Raises for a Plan

These are questions, not answers. What any of them means depends on a particular family’s holdings, timeline and plan, and none of it is a recommendation to buy, sell or hold anything.

On private credit. Which default definition does a manager report against, and how much of the portfolio is paying interest in kind or on extended terms?

On non-traded BDCs and other tender offer funds. With requests at non-traded BDCs still around twice the typical 5% quarterly limit, what does the plan assume about how long a full exit takes?

On energy. For a plan that depends on energy income or energy costs, what oil price does it assume, and does that assumption distinguish physical prices from futures?

If you’d like to work through any of this against an actual plan, we’re glad to talk it through.

The Bottom Line

October’s data and October’s markets disagreed. Growth and earnings were strong in the third quarter, and private equity deal activity recovered from the second quarter while remaining below a year earlier. Over the month, the largest technology companies, several of them heavy spenders on AI, fell, credit spreads widened, and at month-end physical oil cost more than futures.