Market Outlook: October 2026
The views of our Investment Committee on rates, inflation, market structure and the financing of the AI build-out.
At a glance
- Rates
- The Federal Reserve raised rates in September and markets now price further hikes. In our view, the rise in long-term yields has gone further than fundamentals justify.
- Inflation
- Driven by supply, with oil around USD 100. The squeeze on household income raises the risk of a slowdown.
- Equities
- Gains rest on a handful of very large companies and on passive flows. A reversal of those flows could cause a fast drawdown.
- Credit
- Too much debt is chasing the AI build-out, ahead of returns, and the risk is moving from banks to private debt funds.
US rates and inflation
The Federal Reserve raised its policy rate by 0.25 percentage points on 16 September, to a range of 3.75% to 4.00%, and most officials expect one more increase this year. Markets have swung from pricing cuts to pricing hikes, and the 10-year Treasury yield has reached its highest level in nearly two decades. We consider this repricing somewhat excessive.
Source: Federal Reserve; US Treasury market data as of 13 October 2026.
Why yields are high
Structural demand for bonds is weak. Pension funds and other natural buyers are rotating into private equity, private credit and data centres, and US household allocations to bonds are at historic lows. Supply is heavy: large amounts of maturing debt must be refinanced, issuance is concentrated at the short end, and the federal deficit reached about USD 2 trillion in the 2026 fiscal year.
Inflation
Current inflation is driven by supply, with crude near USD 100 and sharp rises in fuel prices. The Fed is responding with higher rates, but the squeeze on disposable income points to a risk of contraction. With US federal debt above USD 40 trillion, we believe the authorities will tolerate somewhat higher inflation, and we think measures to cap long-term yields are likely at some point (we explain the mechanism in How governments shrink debt quietly). Companies that borrowed at 2% to 3% in 2022 and 2023 and now refinance at 7% to 8% could eventually push the Fed into a sharper cutting cycle driven by stress.
Housing and gold
The 30-year mortgage rate peaked at around 7.6% at the end of September, its highest in about three years, and has since eased to around 7.2% to 7.4%. The housing market has stalled, and affordability is confined to a narrow segment of buyers. Gold has become a crowded trade after its run from the USD 1,700s. We think a weaker US dollar will eventually be needed to manage the debt burden, but that is not yet in place.
Equities and market structure
US indices have avoided a broad correction, but leadership narrowed sharply in September. The equal-weight S&P 500 fell by more than 4% in the month while the main index slipped about 0.5%, held up by eight to ten of the largest companies. Over a longer horizon the equal-weight index is still up around 11% year to date and 15% over one year. The S&P 500 dividend yield is around 1%, yet there has been no rotation into bonds despite Treasury yields above 5%.
Passive flows are the structural bid
Index funds allocate by market capitalisation, regardless of valuation. If flows into these funds reverse, we see a risk of a very fast drawdown, which would likely force the Fed into emergency cuts. The concentration of order flow among a few wholesale market makers and in off-exchange venues can amplify moves around the open and the close.
Politics and energy
Ahead of the midterm elections on 3 November, the US administration has a strong incentive to support markets. Iran risk is largely priced in, flows through the Strait of Hormuz remain high, and the main producers appear comfortable with oil around USD 100. Even a diplomatic breakthrough would not guarantee a sharp fall in oil prices, although markets would likely trade the expectation.
Technology, AI and credit
AI capital expenditure remains the main support for equity markets. Falling barriers to local and open-source models, including Chinese ones, are a risk to AI margins. After the listing of SpaceX in June, the next test of investor appetite is Anthropic’s planned listing, which Bloomberg reports could come as early as mid-November at a valuation of up to USD 2 trillion. That would be the largest listing on record.
Too much debt, not enough return yet
Capital spending on AI and data centres is running ahead of returns, and too much of it is financed with debt. According to market reports, banks have spent more than six months trying to distribute around USD 38 billion of construction debt for data centres leased to Oracle, and loans tied to a further USD 18 billion project have been quoted at around 90 cents on the dollar. As banks pass this exposure on to non-bank lenders, we see significant risk building in private debt funds. The longer history of such booms is the subject of The technology lasts. The investors often don’t.
What we are watching
01 Long-term yields. Whether the repricing extends, or demand returns at these levels.
02 Index fund flows. The first signs of sustained outflows from passive equity funds.
03 AI debt distribution. The price at which banks can place data-centre loans, and who ends up holding them.
04 Oil around USD 100. Its effect on household income, and on the Fed’s room to manoeuvre.
Sources: Federal Reserve; US Treasury market data; S&P Dow Jones Indices; Bloomberg and market reports, as of 13 October 2026. Views of the GYRA Investment Committee of 29 September 2026. Forward-looking statements are based on current assumptions and are subject to change without notice. This article is provided for information purposes only. It does not constitute investment advice, an offer, or a recommendation to buy or sell any financial instrument or to adopt any strategy. The views expressed are those of the author and of GYRA SA at the date of publication and may change without notice. Past performance is not indicative of future results. Data sourced from third parties is believed to be reliable but has not been independently verified by GYRA SA.