• We update the latest UST profiles as the UST rallies despite a spike in oil to $104 and rising CPI and PCE inflation. The FOMC held the line in October, and that might change in December (see Weekly UST Deltas: More Declines, More Inflation 10-31-26, PCE Sept 2026: Inflation, Income & Outlays 10-29-26, CPI Sept 2026: Does Chronic Inflation Need More Treatment 10-15-26).

• We frame some timelines across the cycles from the Carter years through today, present various angles on the UST during the post-COVID ZIRP period, then across the sustained supply-demand imbalances that flowed into the Russia-Ukraine oil shock and ensuing inflation effects, and the eventual onset of high tariffs.

• We still see mortgages above 7% and shorter rates that have driven up working capital costs for companies and retail financing costs for consumers.

• In this commentary, we run through the UST curve collection as food for thought with a lot of inflation moving parts. The questions from skeptics are that a solid macro rebound could be creating some risks of ignoring a renewed CPI and PCE price threat and the FOMC waiting might backfire.

The above chart updates the journey from the Carter inversion peak of 1978 and into the 1979 inflation spike on the way to the 1980-1982 stagflationary double dip. That early 1980s period offers some “I walked to school in the snow” opportunities in the form of a 23% “prime plus” loan. The Misery Index was near 22% in June 1980 when I started working in NYC. That was a real problem. The 5% area 10Y UST and 7% mortgages are today’s muted version of pain.

The 1980 to 1989 period was a different world than what followed the Greenspan ease-a-thon in the early 1990s policy to support banks and once again a 2001 mega-easing to relieve consumer worries after the tech bubble imploded (see Greenspan’s Last Hurrah: His Wild Finish Before the Crisis 10-30-22, UST Moves: The 1990-1991 Risk Factor Pig Pile10-24-23).

The above chart offers a more recent UST curve view that covers the Oct 2023 peak in mortgages as the 10Y UST briefly hit 5%. At that time, Freddie mortgages crossed above 7.6% while numerous mortgage surveys posted some 8% levels (see Mortgage Creep Continues, Curve Shapeshifting Uncertain 10-4-26, Mortgage Rates vs. UST Curves: Spooky Memories to Ponder 9-20-26).

The above chart updates some mortgage rates during recent periods and some others against the housing bubble. These include the peak homebuilder year of 2005 and mid-2006 as the RMBS quality problems were surfacing and raising some alarms.

The Freddie vs. 10Y UST differential still flags some risks relative to the Oct 2023 differential. The FOMC tightening potential and risks of more inflation setbacks ahead could challenge the ability of the UST to sustain this latest rally. That is, unless the AI backdrop gets worse and we see more equity volatility that flows into capex reassessment and ripple effects into GDP growth doubts.

The above chart offers another angle with the migration from 2020 to the start of March 2022 just ahead of the end of ZIRP. We then make the big jump to Oct 2023 at the top when the 10Y and 30Y mortgage saw an earlier cyclical peak before the latest migration in 2026 sent mortgages back above 7%.

The 9-16-24 UST curve came after the UST rally and was just ahead of the start of the easing cycle in 4Q24. That in turn led to an upward move and sharp 2025 bear steepener (see The Curve 12-15-25).

The above chart adds some more information content to the journey from 2020 with the “memory boxes” detailing the hiking and easing cycles.

UST delta timelines…

The following charts update the UST deltas across 2026, which has been a very busy year with the Iran War effects.

The above chart updates the weekly change in UST in the form of a bull steepener from 2Y to 30Y. We already posted a commentary on the 1-week move in the curve earlier.

See Weekly UST Deltas: More Declines, More Inflation 10-31-26.

The post-Iran UST deltas quantify the pain delivered to the markets and the economics of borrowing caused by the ill-advised and badly mismanaged Iran War strategy. The Iran War could make a future update of the March of Folly necessary if Trump escalates further after the election (as he has pledged). It takes a lot to qualify for that list of wars and needs to be on the level of “multi-generational dumb.” He is working on it.

Just to rub it in, the above chart details the UST deltas in the YTD period before the Iranian bombing. The market was shaping up as a bull flattener with some even seeing room for FOMC easing. That ship sailed.

When the smoke cleared on the events of 2026 YTD, this is where the UST deltas stand as of Friday. There is a lot more to come in policy decisions and the moving parts of inflation, asset allocation and government deficit funding needs. The election results will certainly factor in ($5,000 checks anyone? Iranian escalation and more energy inflation?) Stay tuned.

• The ongoing reassessment of AI anxiety and potential revisions to assumptions will keep the sentiment thermometers in hand as the timing and ambition of the Anthropic IPO and OpenAI fund raising potential remain hot topics. The sheer scale of the bellwether sell-offs last week obscures the fact that the single name tech weakness was muted even if heavily in negative return range.

• The pyrotechnics that came with last week’s AI noise could continue with various bellwethers in the tech space reporting including Apple, Advanced Micro, Qualcomm, and Palantir among others. The AI capex fixation (“Is it is too high? But just don’t cut it or I’ll worry even more) overlaps with the bullish multiplier effects for the broader economy.

• The fact the UST curve keeps declining despite of higher inflation such as PCE this past week and oil (WTI) hitting $104 by Friday after being at a $91 handle in early October feeds a debate on how that UST downshift might unfold and what the FOMC does next. Old school flight to quality? Sector rotations? Hints of bearishness on AI potential? Worries of multiplier effects on broader growth?

• Governor seats, state legislatures, and even a few major Mayoral elections will increase focus on critical topics such as data centers along with the more immediate focus of current local leaders fearing election interference. Election fears will be realized or not this week and reactions will follow.

• A lurking question is whether Trump will just go the route of “sticks and stones” calling everything “rigged” in just another whine-a-thon or instead go full-on fascist with voting machine and ballot seizures? The market will care about the latter. If Democrats take the House, then budget “retribution risk” handicapping picks up for the new crop in Congress not due in seats until January. The Senate is a toss-up and that controls appointments.

For the current measurement period, the fixed income returns posted an all-positive 1-month time horizon after a lot of negatives on the adverse curve moves in the aftermath of the Iran bombing (started Feb 28). For 3 months, we still see 3 of 4 negative but the downward migration of this month has also sent the 7 bond ETFs we track (chart further below) into positive range.

Equity returns by benchmark have been split with growth and tech taking a beating but the Russell 3000 value and Russell 2000 in positive range along with the less useful Dow with its narrow group. The S&P 500 broad market benchmark was modestly negative since it has a high-tech concentration with Information Tech and Communications Services combining for over 45%. That is just from 2 of 11 S&P 500 sectors.

The tech bellwethers clearly had a very bad week with 6 of the Mag 7 in the red as Tesla (TSLA) took the #1 slot for the week. Among single names, only Oracle (ORCL) and Broadcom (AVGO) made it into positive range. Alphabet was a distant last place after its disappointing earnings mix and guidance around its “search” revenue and the potential threat of AI cannibalization. We covered the week in tech in our Tech Check commentary (see Weekly Asset Returns: Teck Check 10-31-26).

We already posted a commentary on the weekly asset returns for the broader group of 32 asset lines (see Weekly Returns: Benchmarks and ETFs 10-31-26).

The score of 24-8 was notable and in sharp contrast with the 8-24 score for the Tech Check list of benchmarks, ETFs, and single names.

We already posted commentary a commentary on the Tech Check list (see Weekly Asset Returns: Teck Check 10-31-26).

While it was clearly a brutal week for tech and some bellwethers headliners, only 3 names were down double digits. The noise was louder since 2 of the 3 (Alphabet and Intel) are such major names including a legacy Mag 7 name in Alphabet while Intel is one of the semiconductor leaders. INTC was the comeback story of the cycle with a major government stake taken along the way.

The median negative return of the 32 was only around -2.0% with only 7 names worse than a -5% handle. This signals considerable worry but not a crisis – yet. The AI story still has a lot to play out ahead with IPOs and where capex heads from here.

The 1-month score for the broader mix of 32 asset lines looked a lot like this past week with a 24-8 score and heavy weighting of tech in the bottom quartile. The large cap benchmarks (S&P 500 and NASDAQ) are sitting in the bottom quartile based on tech exposure. The NASDAQ is in the red along with the Equal Weight NASDAQ 100 ETF (QQEW). Communications Services (XLC) is in dead last with the Tech ETF (XLK) just ahead of it in 2^nd to last.

The winners for the month included energy names at #1 with Energy (XLE) and E&P (XOP) as oil (WTI) climbed $13 in the month to around $104 after sitting at a $91 handle on the first Friday of Oct and moving as low as $88 early in Oct (10-7-26).

Meanwhile, downstream refined products such as diesel and home heating oil are wreaking havoc from New England (home heating oil) to everywhere with diesel a lifeblood factor in freight and logistics and delivery costs and critical in the traditional rural stronghold of MAGA.

The AI equity market volatility has been a big part of driving UST rates lower despite adverse trends in inflation with CPI at 3.7% and PCE at 3.6%. Those numbers are well ahead of average hourly wage growth of 3.1%. For many the high 3% inflation metrics are lower than the actual household basket where energy can loom larger than the inflation index weighting and be subject to seasonal spikes (note: home heating oil and power costs in winter, varied commuter demand for gasoline, etc.). The heavy-duty pickup crowd can face diesel cost pain both for work and personal use.

Other leaders in the month include defensive equities and quality dividend stocks as lower UST rates offered support for those equity subsectors. We see Consumer Staples (XLP), Utilities (XLU), and Health Care (XLV) in the top tier. Consumer Discretionary (XLY) was rebounding this month after dragging on a YTD basis.

October was “hell month” for tech with AI rattled and semiconductors paying back some of the exceptional returns from the year. As we cover in the YTD charts further below, the AI ecosystem and semiconductor names show a leaderboard with the top quartile posting returns at a significant multiple of the long-term return on equities.

The bottom quartile of the Tech Check list is heavily driven by AI and 5 of those 8 directly tied to semis. The weakest outliers have dominated the headlines as covered in the weekly recap, but the -45% handle on Intel (INTC) was treated as a shock even though PC weakness was already in the news. A common view was that INTC fell short of transparency on earlier guidance.

Dell is a massive supplier of AI infrastructure and serves data center needs. Dell still leads the YTD return chart at +237%. Google was also a blaring headline this past week on worries around its core search business as well as its massive capex demands.

The 3-month timeline for the broader mix is relatively even at 15-17 with a mixed performance by the 7 bond ETFs at 3 positive and 4 negative as the recent rally allowed the UST ETF (GOVT) and long duration UST 20+Y ETF (TLT) to edge above the 0% line. IG Corporates (LQD) and HY (HYG) felt the pressure of spreads widening even if spreads are still compressed in historical context.

The big winner remains energy with the broader Energy ETF (XLE) at #1 and the E&P ETF (XOP) at #2. Oil prices are driving upstream profits and the spikes in refined downstream products have reached highs that are hammering the consumer and driving a range of CPI and PCE inflation metrics higher even outside of energy products and services.

The top quartile sees the defensive Health Care ETF (XLV) and quality dividend stocks such as the Consumer Staples ETF (XLP) in the top 5 along with a comeback continuing in BDCs (BIZD), which are still in the red YTD and for the trailing year.

Materials (XLB) made the top tier on materials cost pressure that are hitting businesses and consumers. That cuts across companies operating in steel, copper, gold, and along the petrochemicals chain. The capex boom brings rewards to the suppliers.

Despite the recent setbacks in the tech sector, the Tech ETF (XLK) still did enough over 3 months to make the bottom of the top quartile.

The Consumer Discretionary ETF (XLY) made the top tier. XLY has had its ups and downs across 2026 and remains in negative return range YTD in the bottom quartile. The recent rebounds in the consumer sector as detailed in the monthly PCE reports and the PCE growth lines of GDP are drawing attention.

The broader mix of assets posted a YTD score of 23-9 with 5 of 7 bond ETFs in negative range and 4 of them in the bottom quartile. Only HY (HYG) and the short duration UST 1-3Y (SHY) posted positive returns on less duration exposure. That said, HYG has seen spread widening from the +280 bps area to start the year into the mid 300 bps range during October. There will be questions around new issue bond supply and credit ratings risk for the broader tech sector – including Anthropic’s potential bond ratings, which became a headline debate this week.

One fear is that a BB tier Anthropic might send middle tier (BB and BBB tier) investors back to the memories of the bad old days of auto downgrades in 2005. That was a time when the “supply flood” topic tended to overshadow the reality that BB tier names present minimal default risk in a tier of the market that is very deep and starts to blend with the BBB tier investor base.

That BB tier risk does not mean the adjustment period will not bring volatility and intrinsic pricing penalties in the form of quality spread widening. Many issuers stay in the BB tier for a long time, some recover and get upgraded, and some head south (as the autos did into 2008-2009).

In terms of the YTD winners in the chart above, the energy ETFs take 3 of the top 4 with E&P (XOP), diversified Energy (XLE) and Midstream (AMLP). The Tech ETF (XLK) still ranks #3 even as it enters a period of uncertainty and challenges to risk pricing from equities to debt.

The benchmarks from large caps to small caps did not make the top quartile and were in the 2^nd quartile with the Russell 2000 ahead of the S&P 500, Midcaps (MDY) and NASDAQ. That said, the Equal Weight S&P 500 (RSP) took the last slot in the top tier.

For the bottom tier, we see half the group comprised of bond ETFs and were joined by Communications Services (XLC) in last place along with BDCs (BIZD), Consumer Discretionary (XLY), and Homebuilders (XHB).

Into the Weeds in Consumer Discretionary (XLY)

Consumer Discretionary (XLY) is in the bottom quartile in the red and is worth a few more comments. We looked again at the top 25 holdings of XLY, and it always offers a reminder that the label “consumer sector” does not lend itself to easy generalization. We can look at the quarterly PCE growth numbers in quarterly GDP stats and the same for PCE releases each month, but much of the economy is under the headline numbers.

Personal Consumption Expenditures (PCE) comprise almost 68% of GDP and that is a lot of subsectors across retailers, consumer products companies, food and food/drink retail, travel and leisure, and consumer durables such as autos (with auto retailers from vehicles to aftermarket parts to maintenance services).

XLY shows concentration risk in Tesla, and that has not helped. Now Amazon has come under modest pressure this past week. The travel-related holdings have done very well in 2026 while auto related names have been mixed. Retailers have generally been under pressure with some notable exceptions (e.g. Ross Stores). While a name such as Starbucks has been a big winner, McDonald’s has been hit hard.

There are too many stories to highlight here, but names such as Booking Holdings, Lowe’s, and Nike are on the ugly side. Winners such as Hilton, Marriott, and Royal Caribbean offer a reminder of the tiered consumer financial profiles.

The YTD results for the Tech Check mix still reflect the massive winnings from the AI and capex boom and the benefits to semiconductors and data center suppliers broadly. The score of 19-13 was favorable. We see a heavy mix of software and SaaS firms in negative return range, which continues the trend from periods we have covered along the way.

No Mag 7 single name made the top quartile with 2 in the 2^nd quartile (AAPL, NVDA), 4 in the 3^rd quartile (GOOGL, META, AMZN, MSFT), and 1 in the bottom quartile (TSLA). It is worth highlighting that NVDA is near the bottom of the 2^nd quartile despite being the name many would associate with the AI kickstart.

As mentioned in the bullets and intro at the top, those AI ecosystem names face some election risk at the state and local level this coming week on data centers with bipartisan pushback from the suburban to exurban to rural. There will be some “morning after” sorting to do on where any repricing risk might surface on projects and capex.

The YTD numbers show that even after a bad week with blaring headlines, it took a 56.6% (SOXX, the Semi ETF) return to make the top 5 and 33.6% (Taiwan Semi) to make the top quartile.

The trailing 1 year has 9 in the red after only 1 name in negative range as of June, but the 23-9 score drives home it was a great time to be invested in equities with 4 of the 9 in the red being bond ETFs. Bond ETFs overall were 3 positive and 4 negative.

The top of the leaderboard is much like the YTD mix with energy ETFs (XOP, XLE, AMLP) in 3 of the top 4 rankings and the defensive Health Care ETF (XLV) in the top 5. Materials (XLB) rounded out the top 5.

XLB strength mirrors the commodity and raw materials pressure that came with tariffs and the AI capex boom. Materials continue to roll into inflation and affordability pressures whether squeezing business costs or consumer price tags.

The Tech ETF (XLK) ranked #7 in the top quartile behind Regional Banks (KRE). KRE’s performance pushed back somewhat on the fear of widespread stress in private credit and strained corporate loan credit quality. After all, the forces driving capex, a consumer rebound, and lofty fixed investment increases economic activity into a lot of regional ecosystems. The question ahead is whether those capex and consumer lines will face more strain on any defensiveness in spending and lending.

The chart highlights that the yield curve remains on a downward trajectory with a bull steepener this week coming off the FOMC “hold” and the usual vague and relatively useless comments that are now part of the new Fed Chair’s post-meeting routine. The FOMC handicapping is what drives the 2Y UST, and the short maturities moved more as part of another round of declines in the 2Y to 10Y this past week.

Mortgages also made a modest move lower to 7.27% on Friday (Mortgage News Daily survey) after a decline in the Freddie Mac benchmark on Thursday to 7.24% from 7.32%. The Freddie rate is well above the year-ago rate of 6.17%. The reality is still that a 7% handle on mortgages remains a major headwind for both new home sales and the much larger existing home sales market.

One theory in handicapping the next FOMC move is that the vote might be more guarded around tightening actions if the AI and tech boom start to get reeled in and falls into a sustained bear market. The idea is that market weakness would increase downward pressure on the massive capex wave. If capex gets dialed back and market turmoil gets worse, that could potentially undermine the consumer sector and PCE growth and hit employment.

Among potential trigger events could be a disappointing Anthropic IPO or slower/lower funding plans over at OpenAI. The worry around the mega tech names dialing back capex would suddenly shift market worries from too much capex and negative free cash flow to concerns that lower capex would signal that the “magic is fading” for unlimited AI potential. The half-empty crowd might see less conviction and diminished multiplier effects in the broader economy.

In the meantime, PCE inflation was unfavorable this past week and GDP was impressive across a range of lines (see 3Q26 GDP: Happy Days? 10-29-26m PCE Sept 2026: Inflation, Income & Outlays 10-29-26).

Stock market performance is not part of a dual mandate, but that reality never stopped Greenspan in the early 1990s or 2001 as the tech bubble imploded. We have looked at those periods in other commentaries (see Greenspan’s Last Hurrah: His Wild Finish Before the Crisis 10-30-22, UST Moves: The 1990-1991 Risk Factor Pig Pile10-24-23).

Bubbles often lead to a blurred adherence to Fed dual mandates with an excuse to ease not hard to find and can be rolled up under the mandate. For now, the financial conditions as reflected in the UST are not “doing the Fed’s work for it” as it might have been earlier when rates climbed.

We have seen some commentary that a strengthening economy and inflation threat was a major mistake by Powell in 2021, and it might be unfolding again. If the FOMC does not respond to any protracted market weakness tied to AI, you can be assured Trump will be on the warpath.

The chart details the 24-8 score for the broader mix of benchmarks and ETFs we monitor. The tech-heavy NASDAQ and S&P 500 are in the bottom quartile in the red with negative returns. We see Midcaps, the Russell 2000, and the Equal Weight S&P ETF (RSP) in positive range.

All 7 bond ETFs are in positive range on the latest UST rally that has rolled in despite higher inflation and sharply rising oil. AI anxiety and tech equity pain have been the leaders in the headlines and on the scoreboard. That has flowed into the UST curve. We already posted on the weekly Tech Check returns with its score of 8-24 as it flipped the broad asset line score of 24-8 (see Weekly Asset Returns: Teck Check 10-31-26).

The Communications Services ETF (XLC) at -5.32% is the bottom-dwelling outlier based on the high mix of Alphabet (GOOGL) and Meta (META) with both in the red and given the scale of the GOOGL beatdown. Other notable negative returns from tech in the bottom quartile include the Equal Weight NASDAQ 100 (QQEW), the Tech ETF (XLK), NASDAQ, and the tech-heavy S&P 500.

The S&P 500 had 9 of its 11 sectors in positive range, but the two major tech-based sectors were negative. We saw Info Tech (37.4% of S&P 500 index) and Communications Services (8.4% of index) both in the red.

Among the winners, we see the BDC ETF still making a comeback at #1 as another earnings season and some strong macro numbers keep the more extreme private credit bears at bay.

The GDP lines and PCE outlays numbers were solid with a large share of consumers healthy and outspending their income growth (lower savings rates do have risks). The 3Q26 GDP also showed the fixed investment numbers still powering ahead (see 3Q26 GDP: Happy Days? 10-29-26m PCE Sept 2026: Inflation, Income & Outlays 10-29-26).

Defensive stock such as the Health Care ETF (XLV) and higher quality dividend stocks such as Utilities (XLU) are in favor. Lower UST rates on the long end have propped up the Homebuilder ETF (XHB) while Materials (XLB) are benefitting from the fixed investment multiplier effects.

The 8-24 score on our Tech Check list almost tells its own story, but there have already been blaring headlines. A handful of outliers draw the headlines, and a median of -2% is not a crisis. It is an early warning system.

News flow had triggered bellwether reassessments (e.g. Alphabet, Intel) while recent AI fears reflect anxieties over revenue and cash flow assumptions. The range of concerns have spread to credit market access or funding costs that overlap with FOMC policy.

Capital markets concerns are evident in the Anthropic IPO handicapping (size, price, timing) while OpenAI has reportedly dialed back ambitions for funding. The economic interconnectedness of the AI-related capex boom gets a lot of focus with the more pejorative term “circular” used occasionally. The concept of “one man’s capex is another man’s revenue” was addressed back in the vendor financing days of the tech/telecom bubble which peaked with the NASDAQ in early 2000. The larger scale of the multiplier effects today (construction, power, materials, etc.) were seen when Caterpillar stock briefly tanked despite excellent 3Q26 earnings.

Inflation pressure sees oil (WTI) at a $104 handle (vs. a $91 handle in early Oct) and high PCE inflation numbers running ahead of wage growth this week. UST rates rallied again (see PCE Sept 2026: Inflation, Income & Outlays 10-29-26, Weekly UST Deltas: Flight Effects vs. Inflation 10-25-26).

The fallout from inflation (CPI at 3.7%, PCE at 3.6%) is damaging to the cost of capital and real wages (see Employment Cost Index Sept 2026: The Lag Effect 10-30-26).

Even with long-dated UST lower, residual fears of inflation or stagflation would fall hard on tech growth stories and could undermine rebounds. The UST rally sees a mix of subjective variables such as sector rotation, flight to quality, and taking chips of the table. There can be overt or closet fears of slowing growth – even in a week where very strong GDP was reported with PCE growth healthy and fixed investment in a rare zone (see 3Q26 GDP: Happy Days? 10-29-26).

The laundry list of “sentiment shakers” is growing. Capex and free cash flow is a focal point. The only worry worse than too much capex would be a cut in capex. That is a tough balancing act for the AI trade.

Triggers can come with simple setbacks in earnings and guidance, but smaller events can be extrapolated into doubts over bullish assumptions that underpin the valuation of “anything AI.” The AI ecosystem can get targeted in pieces (semi manufacturing, potential AI IPO results, software/SaaS business model erosion, etc.). We have seen all of that recently. There are a lot of moving parts and risks to handicap.

• The Employment Cost Index has not changed much in 2026 with 3.4% total compensation growth for all civilian workers, which is flat to the June quarter. The wage number was 3.1% for the September quarter. “Private industry” was also 3.4% for total compensation, and that grouping seeing a modest uptick from 3.3% in the June quarter. State and local government workers ticked lower to 3.5% from 3.6% with wages at 3.2%, down from 3.4% in June. (see Employment Cost Index June 2026: Inflation > Wage Growth 7-31-26).

• The balancing act between the low upward wage pressure on inflation creates the tradeoff “inflation vs. household pain.” Inflationary forces away from labor are something we routinely cover with CPI and PCE inflation at the headline level higher and the same across critical pieces of the “household basket.” The effect is a body blow to real wages and household cash flow. Inflation exceeds wage growth, and that is a bad thing by definition (see PCE Sept 2026: Inflation, Income & Outlays 10-29-26, CPI Sept 2026: Does Chronic Inflation Need More Treatment 10-15-26).

• With health care still a pain point with rising health insurance premiums and/or the shift to higher deductible plans (or no healthcare insurance at all), these 3% handle wage and total compensation numbers are bad news for the workers. Employers get the better part of the deal as they raise prices in many areas from goods to services.

• The waves of layoffs in the news and the AI threat ahead for many workers is undermining wage leverage and job mobility in a “low hire, low fire” economy that might shift into a “low hire, high fire” backdrop. The “benefits” piece of compensation will be especially tenuous and costly for those who end up without health care coverage.

The above chart updates the Employment Cost Index (ECI) time series since 2001. We see a current rate of 3.4% for all civilian workers for total compensation that includes a 3.1% salary component as noted in the bullets. The median of 2.9% will not work for consumers in a market where 3% handle headline inflation becomes the norm.

We see the steps down for the various ECI mini-peaks across the new millennium from the tech bubble peak in 2001 of 4.2% to late 2003 at 3.9% to the pre-housing meltdown period of March 2007 at 3.5%. Then came the credit crisis.

The post-crisis period worked its way back to the 2.9% ECI level in late 2018. The 2022 inflation spiral after COVID sent the ECI back up to 5.1% even as inflation in 2022 was battering consumers.

The above chart offers some context on employment costs vs. inflation with CPI and PCE inflation both detailed. The box in the lower left details the medians since 2000 for ECI at 2.9% vs. CPI at 2.3% and PCE at 2.1%. That timeline included an extraordinary period of low CPI and PCE with the financial system crisis and a pandemic. That period also includes a mix of oil price spikes and collapses after starting off with a tech bubble implosion during the 2000 to 2002 chaos.

The current levels for ECI (3.4%), headline PCE (3.6%) and headline CPI (3.7%) are in an unfriendly cluster for now. A return to the 2% handles for any of those is part of the daily handicapping exercise. With costs of energy, commodities, downstream materials (steel, petrochemicals), tariffs, and semiconductors on the short list, it is very hard to be optimistic on inflation declines. The USMCA uncertainty and the announced intention to escalate in Iran after the election is not helping the story line.

The above chart updates the unemployment rate time series vs. the Employment Cost Index. The labor economists and the market can debate where pricing power flows to labor and when it doesn’t in a macro backdrop such as 2026.

A low 4% unemployment rate would be full employment across most historic cycles, and the 3% handle unemployment rate was a key factor that also fed PCE growth and prevented a recession during the inflation panic of fall 2022 (see Unemployment, Recessions, and the Potter Stewart Rule 10-7-22).

Some pockets of labor shortages have surfaced in goods sectors such as homebuilding and construction markets and health care in services (among others) flow from the mass deportation damage and fear created by ICE and the violent, masked Goon Squads seen so often on video with an occasional execution.

Those forces can shrink labor on two fronts. First, those deported immigrants deplete the employment ranks in numerous subsectors with some more regionally concentrated than others. Second, those fearing harassment (even with a green card or citizenship) are at times afraid to leave the house. Some parties hope that fear will carry over to the voting poll booths. That will be documented (or not) next week.

The subject is a toxic one in this environment and fraught with the usual “diverse sets of facts” (aka lying). The rise of open racism and xenophobia is a self-evident fact that many still deny.

So far, the wage effects and supply-demand tradeoff shifting to support labor have not moved the needle much in 2025-2026. The AI handicapping on how it will all flow into headcount and wage power does not bode well.

That takes the edge off the wage piece of the inflation story, but wage growth is already underwater for workers even before the threat of sustained pain ahead in energy and health care costs.

• The PCE inflation story tells another cautious tale in September with the UST curve action and the strong 3Q26 earnings sending markets in all directions with some reactions that might seem surprising. With inflation rising and macro demand fundamentals strong as seen in today’s 3Q26 GDP release, the UST rally looks more tied to AI worries and growth questions into 2027 (see 3Q26 GDP: Happy Days? 10-29-26).

• The UST curve increasingly appears wagged by a spreading AI neurosis with inflation moving higher and oil still in triple digits. Today saw another tech smackdown with Alphabet down over 13% as go to print. Caterpillar also was getting slammed as a construction proxy. The UST curve is registering mixed emotions as it digests equity market volatility and a new round of FOMC handicapping after this week’s 10-2 vote. As we go to print, the odds of a hike in Dec stand at 79.6%, which interestingly is down from 84.6% over the past day since the FOMC meeting.

• The PCE inflation data today was without question unfavorable, coming in north of 3% with 3.6% headline and 3.1% core. The release featured a +21.3% YoY inflation rate in Energy Goods and Services that was up from 16.9% in August and only exceeded in the post-Iran period by May’s 23.7% (Table 2.8.11). Goods at 3.9% and Nondurables at 4.5% made for bad news as was Services at +3.5% YoY. PCE ex-Energy and Housing posted 3.6%. The balance of adverse moves in the MoM lines were also unfavorable (Table 2.8.7).

• The relationship of current dollar Personal Consumption Expenditures for the month showed PCE higher than Disposable Personal Income (DPI). The consumer was outspending income with MoM PCE at +0.5% vs. current dollar DPI of 0.2%.That took the savings rates down to 3.8% in Sept from 4.0% in Aug and 5.6% in Jan 2026 to start the year.

The above chart updates the running PCE inflation history with Sept 2026 weighing in at 3.6% headline and 3.1% core. Both are above the recent hourly wage growth rate of 3.0% that is reported each month with the payroll report. We will get a fresh wage growth number next week. For now, we are talking about negative real wage growth in a year with higher inflation and an Election Day next week. That negative wage growth looks even worse for many households that have a more costly “household basket” of goods and services (long commutes and heavy gasoline use, high home heating oil exposure, reside in an expensive metro area, etc.)

Target of 2.0%?

The 1997-2026 timeline we plot offers a useful frame of reference on the PCE target of 2.0% routinely discussed by the Fed and the markets. The shorter timeline from 1997 offers a better visual scale separate from the wild 1970s and 1980s. This chart is a replay we turn to when we hear the 2% target discussed (which is every FOMC meeting).

The 1997 to 2026 period presents a rare stretch at or below the 2.0% PCE inflation line and the same for the Core PCE median as noted in the chart. It took a lot to go wrong in that time horizon at the systemic level and in terms of macro shocks cross below or reach that 2.0% threshold.

The events along the way included tech bubbles bursting in 2000-2001; oil crashes in the late 1990s and in the late 2014 to early 2016 period; and a bank system crisis from 2008 to 2011 (including sovereign stress) to get us there. The COVID pandemic in 2020 was a new one for the modern capital markets.

That constitutes “2% the hard way.”

The above chart updates the long-term time series from 1972 for PCE vs. Core PCE across the decades and cycles. We see the 2.6% headline PCE long-term median in the lower left (well below the current 3.6%) and the 2.6% Core PCE median (vs. the current 3.1%).

The 2026 mini-peak 3.8% (as revised) for PCE headline in May 2026 was dramatically better than where we came from in June 2022 at 7.1% PCE.

In the context of 2025-2026, the headline PCE price index was 2.7% in Jan 2026 and was 2.6% to start Trump 2.0 before the ensuing moves higher. It is clearly higher (that is a fact). Iran was the dagger in the lower inflation story after 2.8% in Feb 2026 on the way to the rise above the 3% line to 3.8% in May 2026.

The energy shock, tariffs, and the various materials and commodities turmoil (aluminum, copper, etc.) are flowing into a range of PPI, Goods, and Services lines as the effects reverberate. Oil and downstream effects are pervasive across the economy with the downstream refined products such as diesel grabbing headlines.

The diesel damage is broad based, but that also comes ahead of what could be some less pervasive home heating oil challenges with colder weather ahead. Home heating oil in New England will likely total more than $1,000 higher for the typical household with a normal winter. Maine has one of the highest heating oil shares in the country at around 50%. New Hampshire (over 30% home heating oil) is getting hit hard also. Collins (Maine) and Sununu (New Hampshire) are facing an election with some unhappy voters.

As someone who grew up with home heating oil in Massachusetts, those big bills for filling up early in the season can take a major bite out of household cash flow. It is not like a quick gas station trip off the highway. It might cause some mood shifts ahead of Election Day. It is hard to get through the winter on a single 275 gallon tank.

The above chart frames the timeline for “Effective Fed Funds minus Core PCE.” For this latest July measure, we see the differential at +0.6% vs. the long-term median of 1.4%. The current differential is not much of an inflation deterrent. A slight uptick in inflation with the easing demanded by Trump could take the market back to negative real fed funds. That is not much of an inflation fighter.

If one sees inflation moving higher and demands from the White House to take rates lower, historical policy will have been scrapped and inflation discipline abandoned.

The market awaits the Dec 9, 2026 FOMC meeting and what comes next for inflation between now and then. A major Iran escalation would not help.

The above table plots the monthly Disposable Personal Income MoM change numbers vs. the Personal Consumption Expenditure MoM numbers across the years from 2020 through Sept 2026. We include a wave of 2026 revisions. It is an easy scan across key time periods for a look at turning points in DPI (e.g. stimulus payments) or PCE. Sept posted a muted move in DPI vs. a more ambitious move in PCE.

Hassett should probably peek at the dramatic monthly moves in April 2020, January 2021, and March 2021. Or he can hire someone to generate a few charts that directly contradict much of what he says. Trump had his signature on 2 of those 3 DPI spikes. Biden tried to get his name on another one but was blocked. Everybody had their fingerprints on the demand turbocharger at a time of severe supply constraints, and that is even without citing the Russia invasion of Ukraine (which Team Trump never cites…instead just repeating, “Biden’s fault” over and over).

Note:

The following is a recurring commentary we roll forward for new readers and students on the history of the COVID relief and stimulus plans and how that rolled into inflation. Please skip this section if you have read it before. The lies and distortion never go away when talking heads in political circles or related media do their soundbite specials.

The above chart is a “replay chart” we include in periodic updates as a reminder that political theme-spinning out of Washington on economic cycles and inflation are usually stacked with selective memories, false statements (aka self-serving lies), material omissions, and conceptually anorexic storytelling (like “seller pays the tariffs” and sometimes even “selling country pays the tariff.”).

The chart updates the trend line in disposable personal income (DPI) vs. personal consumption expenditures (PCE) that we get with each monthly PCE release. We like updating this chart occasionally to offer a reminder of what really happened during the wild days of 2020-2021 given the waves of disinformation from the current administration. It is currently a “quarter end” just ahead of an election, so we update it for this month.

Revisionist history is one thing, but it is good to challenge gross falsehoods and misstatements with facts and history.

PCE growth vs. DPI…

When PCE growth exceeds DPI growth (or negative DPI), as we often see, one conclusion is that many consumers are feeling good (i.e., ignore the sentiment metrics). Or perhaps they are tapping credit cards by necessity (e.g. the PCE could include outsized health care premiums put on their credit cards?).

We have been watching the rate of ACA dropouts and premium increases and the shift to higher deductible plans. Health care is a mess and not clearly captured in the headline data. Health care insurance is cited as deflation under the CPI methodology (ponder that one!) It all adds up to less cash flow at the household level, more borrowing (in some cases), and zero-sum effects on other outlays. Any softening PCE numbers in the GDP updates would tell a story on the cycle.

We saw trouble in personal consumption in 1Q26 (see GDP 1Q26 Final: PCE Growth Plunge 6-25-26). As detailed in 2Q26 and 3Q26 GDP, we are seeing a rebound (see 2Q26 GDP: Good Underlying Numbers Despite Headline 1.5% 7-30-26, 3Q26 GDP: Happy Days? 10-29-26).

The stimulus overload of 2021…

Talking heads in Washington will “play pretend” around what happened in the COVID tunnel of 2020-2021 and what unfolded coming out of that tunnel. There were a lot of structural imbalances and supply-demand dislocations for the economy to absorb.

The 2021 period was a big macro rebound in GDP off the COVID peak period. The strong macro backdrop in 2021 and heavy dose of fiscal accommodation did not mesh well with residual supply-side shortages in goods broadly as 2022 saw the end of ZIRP and a material inflation spike ensued.

Oil was a problem after the Putin invasion of Ukraine in late Feb 2022, and inflation hit a high in June 2022 at +9.1% for CPI as a headline grabber (headline PCE at +7.1% in June 2022) before the steady inflation slide to under 3% by the end of 2024. Core PCE had dueling peaks at +5.6% for Feb and Sept 2022.

Try to get Team Trump to even mention the oil price spike in 2022 as a factor in the 2022 CPI numbers. The questioning on the topic by mainstream media is also lame. The CNBC team does not push such Q&A since they are looking to take GOP interview share away from Fox. They need the GOP guests to keep coming back. Tough questions don’t help that priority.

The COVID relief binge…

The above chart plots MoM Disposable Personal Income vs. PCE and offers a read on how wild things got during and right after the pandemic peak. The DPI swings highlight the effects that came with the three COVID relief/stimulus packages. That included two COVID relief bills under Trump and one under Biden.

As a reminder, Trump signed the CARES Act in March 2020 (shows up in the DPI in April 2020) and Trump also signed the Dec 2020 legislation disbursed in Jan 2021 (Trump seldom mentions that Dec 2020 one since it is easier to blame Biden and Powell). Biden signed the America Rescue Plan (disbursed in March 2021) that was a demand pile-on (we would argue it was over the-top-stimulus) in a supply-constrained environment (thus inflation). The DPI and PCE wave tied to each of those shows up in the chart above.

As a reminder, the COVID vaccine was announced in early Nov 2020 just ahead of two stimulus actions. That was soon to be a factor in PCE patterns and lag effects. The quarterly GDP numbers in 2021 on the post-COVID bounce were numbers generally not seen since the Reagan and Clinton years (see Presidential GDP Dance Off: Clinton vs. Trump 7-27-24, Presidential GDP Dance Off: Reagan vs. Trump 7-27-24).

COVID was a distinct period for supply chains and supply-demand imbalances. With tariffs and potential trade wars, it will remain important to look for similar imbalances whether in narrow product categories or in broad commodities and materials areas. We clearly face some supply pressures in the post-Iran period for oil and gas, refined products, fertilizers, aluminum, and numerous other inputs generating headlines (helium, sulfuric acid undermining copper production). Some shortages also undermined military readiness.

Tariffs, unit costs, and pricing decisions…

In terms of tariffs, the major trade partners have not initiated much in retaliation with the exception of a brief China spat. Canada only recently fought back and set off a fresh trade clash. A “peace at all costs” strategy by the EU and USMCA partners had mitigated the damage, but that de facto submission could come back to haunt some major trade partners if other leaders run for office with a “get tough on Trump” election pitch. Caving in to Trump on tariffs is getting less popular in the EU and Canada. Trump is also pushing his luck after Iran in attacking allies on trade. The USMCA is likely to die a cruel death. That lies ahead.

Jacking up aluminum, steel, and copper on the materials side and seeking even more tariffs on lumber was not and is not a great idea for keeping prices and costs contained. Auto tariffs under Section 232 are extreme even after the array of “deals” and could go higher if the USMCA fully breaks down into 2027.

We saw semis, pharma, and aircraft/engines/parts added to the Section 232 pipeline although most of the aircraft/parts risk was mitigated in EU talks. EU talks are always on the ledge, and Trump makes routine threats. Other actions brought in commercial vehicles, branded pharma, cabinets, and a range of targets on national security grounds including upholstered furniture (seriously, upholstered furniture).

The most important development in the tariff area was the SCOTUS decision on IEEPA. Trump then launched tariffs under Section 122 laws that had a “game clock” and initiated more Section 301 actions (unfair trade) to maximize his flexibility with Section 232 (national security) also in the playbook. He has already been hit with setbacks in court. Trump’s goal is tariff revenue maximization for his discretionary deployment and not economic efficiency.

Trump’s latest gambit uses a Smoot Hawley (1930) provision (Section 338) that allows him to use legislation on the books without consulting Congress. Smoot Hawley is viewed in most circles as one of the most self-destructive pieces of legislation in US history.

The above chart covers the time horizon for DPI vs. PCE from early 2022 as the tightening cycle kicked into gear after March 2022. Life in Jan 2022 was still quiet for Disposable Personal Income relative to the chaos of 2020-2021.

• A 3.4% GDP quarter rode a sustained, solid comeback of the consumer in 2Q26 and 3Q26 after an abysmal start to the year in PCE growth when the PCE line weighed in at +0.7%. PCE is almost 68% of GDP. The 3Q26 PCE growth line of 3.8% was boosted by a material increase on the Services line at +4.1% (reminder: Services is more than 2x the Goods line in dollars).

• The stock market driver remains the massive fixed investment driven by the AI ecosystem with nonresidential investment at +12.7%. That includes fixed investment at +9.4%. That fixed investment line includes the tech-heavy equipment line at +20.9%, intellectual property at +8.4%, and structures at +5.4%. That is a rare set of numbers in historical context. Residential is still dragging at -3.3%.

• Among the quarterly distorters and swing lines in “contribution to % change in GDP,” we see an increase of +1.61% for “change in private inventory” with a GDP haircut of -3.32% for “net exports of good and service” with the export line down slightly and the import line much higher.

• The import and export line is where Trump should get a reminder that a strong economy imports a lot of goods – and that includes a massive increase in the Taiwan trade deficit that supports so many other GDP lines (and the stock market). It is no surprise they don’t get asked that question by a docile, cowed media (even CNBC). He would need to admit something.

• The Government GDP line also rang up big numbers in changes vs. the preceding period at +5.3% with +15.8% in Federal vs. -0.1% in State and Local. The total contribution to the headline GDP from the Government line was +0.9% (about that ballooning deficit…).

The strong 3Q26 GDP advance estimate story is clear in the numbers.

The GDP table details the breadth of the growth across the consumer and investment lines. The 19.4% in gross private domestic investment (GPDI) remains dominated by the AI ecosystem story and related products.

There are a lot of macro multiplier effects on the other side of the investment lines. As we saw this past week, some of those effects are mass layoffs. That could be a PCE risk factor in later quarters.

In PCE, Goods performed well at +3.0%, but the growth rate was down sequentially from 2Q24’s +4.5%. Nondurables are much larger than Durables. And Nondurables posted +3.4% vs. +2.3% for Durables.

Services rang up +4.1% for highest rate presented in the timeline with 3Q25 2^nd highest in the timeline at +4.0%.

Investment lines remain the capital markets headline story even if PCE is almost 68% of GDP. Information and processing equipment has been a major factor, including in trade.

The Personal Consumption Expenditure release is also out today, and we get a more granular breakdown on inflation, which remains a serious problem and rising across numerous product buckets. The PCE release reveals the “what” of the consumer outlays mix and how the price pressure and affordability challenge is leaning on savings rates. Inflation is still running ahead of hourly wage growth, and that means negative real wage growth. We look at that in a separate commentary.

See also:

GDP 2Q26: Bullish Final Revisions 9-30-26

2Q26 GDP: 2nd Estimate 8-26-26

2Q26 GDP: Good Underlying Numbers Despite Headline 1.5% 7-30-26

GDP 1Q26 Final: PCE Growth Plunge 6-25-26

GDP 1Q26 Second Estimate: Shrunk in the Dryer 5-28-26

1Q26 GDP Advance Estimate: Consumer Fade, Investment Boom 4-30-26

4Q25 GDP: More Adverse Revisions in the Golden Year 4-9-26

Some “distortion” stories of past GDP reports:

3Q25 GDP: Morning After Variables to Ponder 12-27-25

2Q25 GDP: Second Estimate, Updated Distortion Lines 8-28-25

2Q25 GDP: First Cut of Another Distorted Quarter 7-30-25

1Q25 GDP Advance Estimate: Roll Your Own Distortions 4-30-25

• Mortgage rate pain keeps new home sales in the sub-700K range, but Sept posted volumes at the upper end of 2026.

• Median prices ticked up higher off the lows and edged above the $400K line.

• The South region is the main event each month at 61% of total sales, and the MoM decline of -6.6% contrasted with the +21.4% in the West with its 21% share of the total.

• Mortgages at 7.32% per Freddie Mac were up from 6.19% last year and remain a major headwind for monthly payment affordability.

The above chart updates the new single family home sales series from 1963, and the current 676K (SAAR) is above the long-term median (637K). The new home sales story has not changed much in 2026. Favorable demographics and pent-up demand have been trumped by high mortgage rates and the intrinsic affordability strain of mortgage math.

Monthly payment pressures are the real “inflation” metric that matters these days more than MoM or YoY price deltas. The Mortgage News Daily Survey was at 7.33% to close last night. The most recent Freddie Mac benchmark rate from Thursday was 7.32%, up from 6.19% last year.

The threat of a move higher in mortgages cannot be ruled out with the 10Y UST next to the 5.0% level seen in the mortgage peak of Oct 2023 (see Mortgage Creep Continues, Curve Shapeshifting Uncertain 10-4-26, Mortgage Rates vs. UST Curves: Spooky Memories to Ponder 9-20-26).

The median price moved higher, back above the $400K line. The tight supply of entry level and starter homes also restrains headline volume totals.

The median of 989K in the housing boom/bust cycle from 2001-2009 is 46% higher than current volumes. As we look back to the peak of the housing bubble, we see 1389K in July 2005 at over 1.8x the Sept 2026 volume. The COVID panic buying and relocation spree in Aug 2020 saw sales of 1036K in a wild period for new home sales and home starts in a ZIRP market with very low mortgage rates.

The above chart plots the share of total home sales (new + existing) that were captured by the “new home” builders. We see the share is now at 14.5% vs. the long-term median of 11.7%. When inventory is scarce, the right home at the right price wins. In the “new vs. existing” contest, the need to refinance at much higher rates has penalized existing while the homebuilders have more room to offer incentives.

The challenge overall for new home sales has been mixed for builders by region. The headwinds have undermined “move up” demand for homebuilders with so many existing homeowners with mortgages and held back by “golden handcuffs.”

Major homebuilders generally continue to report gross margin compression in 2026 and guide to similar expectations for the year. We see lower prices from the builders even if that comes with the asterisk of product tier and geographic mix. Recent major builder results such as Pulte and NVR show lower prices and narrower gross margins as we have already seen in 2026. Industry leader D.R. Horton reports later this week.

The market edge for closing a sale favors builders vs. existing home sales (note: existing is still the vast majority of sales volume). Homebuilders have the ability to use incentives and financing support, and the homebuilder can tailor packages to close sales.

In new home sales, the gap between the expectations of the seller and buyer is easier to bridge through the incentive programs or the ability to offer variations in home design and specs to make a transaction work.

The new home sales volumes are softer with total new homes down by -5.3% YoY. Prices posted this month moved back above the $400K line. The 10Y UST is the key benchmark for the direction of 30Y mortgages, and that has been moving in the wrong direction before the recent rally (see Weekly UST Deltas: Flight Effects vs. Inflation 10-25-26).

The CPI, PCE and PPI inflation metrics have been grim (we get Sept PCE inflation this week). May saw headline numbers over 4%. Even with some sequential easing from spring, confidence in lower mortgage rates is a challenge in the absence of major market turmoil and setbacks in the economy, which carry their own list of problems on the demand side. Oil plunging is one major X factor that would in theory offer relief for the yield curve and mortgages, but the odds now point at a major escalation with Iran.

The median home price time series tells a simple story that prices had been under modest pressure after a period of record highs and a long stretch over the $400K threshold with some dips below the $400K line. We had a dip below that threshold in June before being revised. For Sept, we are back above the $400K line at $400.4K.

The price moves can have a lot of contributing factors from mix to region, but a decline is consistent with the major builders reporting. The South’s lower ASP mix can factor in as a lower ASP region, but the “South” by itself has a very wide range as well. The South posted a -6.6% sequential MoM decrease in volumes (-0.7% YoY) in Sept while the high price West was higher by +21.4% MoM (-17.4% YoY).

The above chart gives a different visual angle on the median new home sales prices from early 2022. That is a lot of $400K handles with some sub-$400K outliers. The $385.4 in Aug 2026 is the lowest in the mix.

The price metrics can shift with regional mix as well as home price tiers and related supply issues. The affordability question is still more intertwined with the monthly payment pressures from mortgages. It is about more than price. Those monthly payments are very sensitive to mortgage rates more than home price moves.

The time series above updates the new single family home sales across the cycles since 1973 for the #1 and #2 regions of the South and the West. The 413K for the South is around 61% of the total of all single-family new home sales (SAAR) and marks a sequential decline of -6.6% from Aug 2026 and is down by -0.7% YoY.

The West at 142K is 21% of the total. For the month, the West was higher by +21.4% sequentially but down by -17.4% YoY. The South is running ahead of the long-term median of 314K while the West is below the median of 173K.

The timeline for new home sales for the smaller Midwest and much smaller Northeast market is detailed above. The Midwest (13% of Sept total) was -7.3% sequentially and -8.2% YoY. The Northeast market (5% of total) was +28.0% sequentially and +10.3% YoY.

• As we have covered the past two weeks, a massive UST rally set against rising inflation and an oil price spike above $100 makes for a strange mixture of inputs and dislocations from the usual cause and effect patterns. AI nerves seem to be taking over the broader story line.

• The increased focus on credit risk and rising credit derivative activity will naturally raise questions on whether the unlimited supply of debt and equity capital will get more disciplined, skeptical, and/or more defensive. That of course flows into pricing credit as well as equity capital when the AI ecosystem needs a lot more of both.

• Musk trash-talking credit quality in the neocloud subsector is not an aphrodisiac for more cheap and bountiful credit availability even if more investors get directed his way as he seeks domination of more business lines. As usual, he will likely succeed.

• The impressive UST curve rally rewarded bonds but is not the “good kind” of rally when oil and inflation is rising and core demand fundamentals remain steady in the overall economy.

• We get a slew of key feedback and data released this week including the FOMC statement, PCE inflation and income/outlays details, and the advance estimate for 3Q26 GDP. Framing flight-to-quality flows is a highly subjective call over time when inflation, oil, and UST supply chaos point at higher rates.

The above table updates the time horizon returns for the debt and equity benchmarks we monitor. We see bonds mounting a comeback with the past two weeks bringing substantial curve relief and supporting duration returns. We see two asset lines in positive range for the month. The trailing 3 months are still all negative and the same YTD.

The painful bear flattener YTD still rules even with the long end rally in the recent AI turmoil. The YTD 2Y UST ended last week at +122 bps YTD and the 10Y at +82 bps. That has been tough on financing costs for the consumer and industrials in areas such as vehicles and equipment but also for the 30Y mortgage rates driven by the 10Y. Housing is suffering.

The tech bellwethers had another mixed month with 5 of the Mag 7 posting negative returns and the Semiconductor ETF (SOXX) in the red and over 9 return points behind the Software ETF (IGV), which took the #1 ranking this week.

We already posted a commentary on the weekly returns for the broader group of 32 benchmarks and ETFs (see Weekly UST Deltas: Flight Effects vs. Inflation 10-25-26). The score of 24-8 was good news for breadth. The fact that the S&P 500 and NASDAQ were in the bottom quartile and the Russell 2000 and Equal Weight S&P 500 (RSP) were in the top quartile also revisited the obvious fact of tech domination at the headline level.

We already posted a commentary on the weekly Tech Check list and relative performance at the benchmark, ETF, and bellwether single name level (see Weekly Asset Returns: Tech Check 10-25-26). The week presented another picture of a “software/SaaS comeback” on the left in the top tier and “AI ecosystem valuation fear” in the bottom quartile. Meta was in last place despite a good quarter as capex anxiety remains a major theme.

The 1-month score for the broader mix of asset lines was 17-15 with tech in the red zone again leading the count in the bottom quartile. Communication Services (XLC) was in last with the Tech ETF (XLK) just ahead of it. NASDAQ was also in the bottom tier along with the Equal Weight NASDAQ 100 (QQEW).

Notably, the Equal Weight S&P 500 ETF (RSP) was in the top tier, but the S&P 500 was in the lower half of the 3^rd quartile in the red.

The winners included Energy (XLE) at #1 and E&P (XOP) at #2 with defensive and dividend heavy ETFs in the top tier. In a positive sign for bank health and earnings reports, the Regional Banks (KRE) and Financials (XLF) were in the top tier. The financial system vote of confidence matters in a volatile market.

The 1-month Tech Check mix shows the fallout from AI ecosystem jitters and repricing in semiconductor stocks as we covered along the way. The 11-21 score shows the comeback of software and SaaS names, which includes more than a few that are still in the red YTD as detailed in a chart further below.

We see 2 of the Mag 7 in the red spread across all the quartiles with 1 name (META) in the bottom quartile and MSFT and AAPL in the top quartile.

We see the bottom 6 all directly tied to semiconductors (INTC, AMAT, MU, AMD, SOXX) or AI infrastructure needs (DELL). Meta and Oracle were in the upper end of the bottom quartile. The Software ETF (IGV) is 17.7 points ahead of the Semiconductor ETF (SOXX).

The 3-month score for the broader group of 32 is 16-16 with 6 of 7 bond ETFs in the red despite the rally of the past 2 weeks. Only the short duration 1-3Y UST ETF (SHY) edged into positive range.

We see how energy costs hit Transports (XTN), which ranked last at -13.65%. That is ugly. The cost pressures have been flowing into any combination of margin erosion or inflation across numerous industries as evident in PPI and CPI readings. Energy (XLE) and E&P (XOP) accordingly took the top 2 slots with defensive and quality dividend sectors rounding out the top 4 with Health Care (XLV) and Consumer Staples (XLP).

The bottom tier also features Homebuilders (XHB) and Real Estate (XLRE). The slide in Industrials (XLI) should be watched since fixed investment and the macro cycle has been steady, but interest rates and cost stress can weigh on a wide range of manufacturing equipment categories globally. Tariffs and material costs are weighing on numerous subsectors.

The YTD returns for the broader group of 32 asset lines weighs in with a score of 22-10 with 6 of the 10 in the red comprised of bond ETFs.

Communication Services (XLC) holds down last place. XLC had poor performance from names such as AT&T (T), T-Mobile (TMUS), Take-Two (TTWO), and AppLovin (APP) along with mediocre performance from Meta (META) and Alphabet (GOOGL).

BDCs (BIZD) also felt the drag of private credit fears and challenges both real and imagined around underwriting excess and the quality of marks.

Homebuilders (XHB) felt the mortgage rate rise, the tariff costs, labor disruptions, and pricing and margin pressures across the builders.

The YTD story line shows Hi-Lo performance gaps that will be a scoresheet for the ages on returns with a 23-9 for positive vs. negative. The Hi-Lo differential (Dell vs. Intuit) is 311 points. If we throw out the Hi-Lo returns and use the next two (Micron vs, Oracle), we are still at a stunning 243 points.

Semiconductors and the AI ecosystem were off the charts while software and SaaS services names were a victim of fears around business models that the market is still trying to sort out.

The LTM returns at 23-9 reflect an increase in the number of negative LTM returns from a low single-digit asset count in recent months. The list was 31-1 at the end of June with only the BDC ETF (BIZD) in the red at that point at -13.5%.

We see 4 of the 7 bond ETFs in the red for the LTM period. We see positive returns for the short duration 1-3Y UST ETF (SHY), HY (HYG), and the EM Sovereign Bond ETF (EMB). Homebuilders (XHB) sit in dead last while Communication Services (XLC) is again near the bottom.

Much of the tech pain has been mitigated by the early 2026 windfalls and energy boom with 3 energy names in the top quartile (XLE, XOP, AMLP) joined by the Tech ETF (XLK). Even Transports (XTN) made the top quartile as travelers could revel in the wealth effects and even more recently push past the fare spikes. Freight and logistics names have benefited from the investment boom for the LTM period even as some have sold off recently on cost pressures and diesel pain.

See also:

Yield Curve Migration: Wrong Kind of UST Rally10-25-26

Weekly UST Deltas: Flight Effects vs. Inflation 10-25-26

Weekly Asset Returns: Tech Check 10-25-26

Weekly Returns: Benchmarks and ETFs 10-25-26

Synchrony as Consumer Credit Proxy: Steady as She Goes 10-21-25

The above chart updates the UST migration patterns that we update periodically as a visual memory jogger. The easing cycle was just about to flow into the market in mid-Sept 2024. We include the 9-16-24 curve as a pre-easing frame of reference just ahead of the FOMC meeting and 2024 election. We also include the pre-Iran UST curve (bombing started 2-28-26) and the Friday curve 10-23-26.

We include the 10-19-23 curve as a frame of reference since that was when the Freddie Mac 30Y mortgage rate hit 7.63% with the 10Y UST closing slightly under the 5.0% line. That period also saw some 8% mortgage rates in surveys outside of Freddie (Mortgage Creep Continues, Curve Shapeshifting Uncertain 10-4-26, Mortgage Rates vs. UST Curves: Spooky Memories to Ponder 9-20-26).

The main takeaway from the UST trends captured in the chart is that the cost of financing has moved sharply higher since late 2024 despite multiple easing moves in 4Q24. We don’t expect Team Trump (Bessent, Hassett, et al) to cite how much higher rates are now since 4Q24. They will just blame Biden.

The transition from tightening into easing across 2023 and into 2024 was a wild ride (see Footnotes & Flashbacks: State of Yields 12-29-24). Today, the market faces a mix of inflation pressure with an FOMC determined to move the needle closer to 2% (at least they say they are). A crack in AI valuations combined with higher inflation and sustained high oil prices is just one of many scenarios one can spin.

A big question is how the new Fed regime would trade off equity market volatility and a correction and/or bear market tied to a ”bubble shock.” Would that detour the FOMC from the inflation commitment? You know Trump would be screaming bloody murder for lower rates if AI cracked.

The question is whether a scenario of AI bubble downside would drive Team Warsh to a Greenspan-style flashback to 2001 or the early 1990s as the Fed sought to cushion the blow (see Greenspan’s Last Hurrah: His Wild Finish Before the Crisis 10-30-22, UST Moves: The 1990-1991 Risk Factor Pig Pile10-24-23). The idea was mega-easing would relieve stock market pressures on the consumer sector and bring systemic relief to some troubled banks at the time. The rising credit risk today and likely spike in hedging exposure will raise some “old but new” issues. Warsh will have more trouble getting the votes than Greenspan did.

After the prior week’s material bull flattener, we saw another this past week. The chart details UST deltas for the week as a fresh UST rally came despite oil (WTI) at $103 and rising CPI and PPI printed the week before. For now, the inflation angst is taking a backseat to equity defensiveness and sector rotation.

The price action for 10Y UST across Wed/Thurs saw moves from around 5.15% down to near 4.95% before ending Friday at 4.99%. We recently crossed the 5.3% line.

For this past week, the 2Y was -5 bps, the 10Y -9 bps, and the 30Y -10 bps. The prior week, the 2Y was -6 bps, the 10Y -15 bps, and the 30Y -17 bps. That was set against grim PPI numbers and unfavorable CPI releases (see Weekly UST Deltas: Bear Macro but Bull UST Move 10-18-26).

As we already covered in our weekly asset return recap, the bond ETFs were all positive this week. The odds of a hike in the upcoming FOMC meeting were down to 10% as we headed into the weekend. The Dec FOMC meeting shows odds of 400-425 bps at 68.9% while 425-450 bps odds are down to 7.3% from 51% 1 month ago.

Subject to how the AI mini-panic frames up in earnings season, that could leave room for more UST steepening again if oil stays ugly with the US-Iran escalation rhetoric and if the PCE inflation metrics come in hot. The lag effects of tariffs and new trade stress ahead seem to have fallen down the headline priority list with the sheer weight of AI fears.

There is also the risk that the US election turns into a bigger sociopolitical fiasco than the nightmare base case of widespread election rejection. That is a laundry list for another day.

For bonds, the higher real yields are a selling point in narrow context, but inflation is not going away as a wildcard. We get the PCE release this week, and that will shed some more light on inflation metrics in the sector trenches.

The PCE release will bring a more granular look at income and outlays and whether the consumer is outspending income and drawing down savings rates. We also get the advance estimate on 3Q26 GDP with the latest read on the critical growth line for personal consumption expenditure for 3Q26 and the PCE inflation rate for the quarter. Fixed asset investment has been critical, but PCE growth is still around 68% of GDP. That will be an important number coming just after the FOMC meeting.

Lower savings rates can be by choice (“never bet against the US consumer”) or by draining household savings. There is “dropping the credit card” by necessity to deal with higher costs (inflation across goods, services, health care premiums, at the pump, and to heat a home). Ford reports this week, and that brings another fresh look at an important consumer sector after GM’s recent report. Car buyer resilience has been impressive.

The chart details the weekly price returns on our Tech Check mix of benchmarks, ETFs, and single names. It was another tough week for the list with an overall score of 15-17. In general terms, software/SaaS carried the week in the top quartile while semi-related asset lines were more heavily weighted in the bottom tier.

We see the Semiconductor ETF (SOXX) in the bottom quartile at -3.08% with the Software ETF (IGV) at +5.99% in the top quartile for over a 9-point return differential on the week. The results show 5 of the Mag 7 in the red with Meta (META) sitting in last place and only Tesla (TSLA) making the top quartile. Apple (AAPL) was also positive in the 2^nd quartile.

The winners are heavy on Software and SaaS service names that had been beaten down by the AI scare (“SaaS-pocalypse”) and business model displacement fears. We see ServiceNow (NOW) at #1 with 4 of the top 5 in the software/SaaS bucket including FactSet (FDS), Adobe (ADBE), and the Software ETF (IGV). Those were joined by legacy bellwether IBM, who has also faced a lot of headwinds in 2026.

The bottom tier includes semiconductor-related names such as Applied Materials (AMAT) as a capex proxy, Intel (INTC), the Semiconductor ETF (SOXX), Advanced Micro (AMD), and Broadcom (AVGO). NVIDIA (NVDA) was negative near the bottom of the 3^rd quartile.

As we look back at the top quartile names this week, we see 4 of those still carrying negative returns on a YTD basis: Intuit (INTU) at -48.2%, Adobe (ADBE) at -24.6%, Tesla (TSLA) at -17.2%, and IBM at -14.4%. Other notable software/SaaS names in the red YTD include Oracle (ORCL) at -35.2% and Salesforce (CRM) at -6.2%.

The chart details benchmark and ETF returns with a 24-8 positive-negative score for the week. The sharp UST rally was set against sustained high oil prices with WTI wrapping the week at $103. More critical macro color will be out this week even as AI jitters remain a theme.

The FOMC meets this coming week, and we get PCE inflation along with a first look at 3Q26 GDP. Fresh inputs on the growth lines (notably PCE and investment) could make the Fed’s life more challenging when combined with oil and recent CPI/PPI news. The odds of a hike in this week’s FOMC meeting were down to 10% as we headed into the weekend. The Dec FOMC meeting shows odds of 400-425 bps at 68.9% while 425-450 bps odds are down to 7.3% from 51% 1 month ago.

Earnings this coming week include Alphabet (GOOGL), Microsoft (MSFT), and Amazon (AMZN) along with GE Vernova (GEV) with its important input on power generation and ties to AI demand and data centers. We get a key consumer durables update with Ford Motor after GM’s earlier constructive release as autos, which have seen SAAR rates hold in well and shown resilience in the face of consumer headwinds (financing costs, affordability).

The UST rally gets tied to defensive flight-to-quality volumes as opposed to inflation and oil. The immediate practical effect was that all 7 bond ETFs posted positive returns for the week with the long duration UST (TLT) in the top quartile.

The top quartile shows the effects of lower UST rates as investors backed off from tech, chased UST, and firmed up demand in the most rate-sensitive sectors (XHB, XLRE). Energy (XLE) and defensive Health Care (XLV) made the top tier.

After a rough stretch, the Russell 2000 popped into the top quartile while the large cap S&P 500 and NASDAQ landed in the bottom quartile. The Equal Weight S&P 500 ETF (RSP) was notably in the top quartile with the tech heavy S&P 500 in the bottom tier. The Tech ETF (XLK) was in the bottom tier.

Communications Services (XLC) posted a poor performance in dead last. META and GOOGL sold off with AI anxiety and worries around recurring capex demands. Borrowing needs tie back into the assumptions on “how much, how soon” around AI-related cash flow levels and balance sheet demands (on or off the company balance sheet).

“Credit” is a word showing up in valuation debates more often while loan/lease commitments expand, counterparty “credit lines” rise, and “interconnectedness risk” increases across the system. Favorable bank earnings and steady asset quality metrics help with some background noise around commercial real estate quality. Commercial and Industrial lending was solid. The Regional Bank ETF (KRE) posted at #1 this week.

While there is no shortage of consumer finance operators to monitor from captive finance auto names to the major consumer lenders (Capital One, Ally, etc.) we like to watch Synchrony (SYF) for its breadth of lending markets and business partners along with 68 million accounts. We see very stable asset quality in the 3Q26 numbers above. While not shown, we saw relative stability in Cap One and Ally also. That is supportive news given the fact that the consumer sector has mounted a comeback in 2026 after a slow start for PCE Growth along the GDP lines (see GDP 2Q26: Bullish Final Revisions 9-30-26).

We have published detailed commentaries on SYF in the past, so we don’t need to revisit all the reasons we see it as a great proxy (see Synchrony: Consumer Bellwether Reassures on Quality 7-23-26, Synchrony: Credit Card Bellwether 10-30-25). The wide range of platforms and commercial partners across so many markets give a very wide angle on consumer spending. The very high net interest margins and high provisioning also make SYF a distinctive name.

Economies march into battle on credit, and the consumer side is holding up. Meanwhile, the AI ecosystem is becoming a case study in credit expansion to fund capex and investment. That includes debt and leases.

The front-loaded financial sector earning reports allow the market to check out bellwether names in consumer finance (notably credit cards and installment loans). Asset quality trends can be monitored for vulnerability of the consumer sector and how that flows into GDP along the PCE growth line that comprises around 68% of GDP. Subprime monitoring is a different exercise than the SYF credit card drill.

For 3Q26, looking at consumer asset quality credit metrics helps. The same is true for interest margins in a market where the UST curve has been unfriendly. The 15% handle interest margins on SYF remain steady with charge-offs in the 5% area holding.

The good news is that the numbers so far from Synchrony to Cap One to Ally are not sending alarming signals. With inflation higher, affordability strained, and the savings rate low in context (see monthly PCE releases), the cyclical news is constructive. There is every reason to watch how households are spending and gauge their ability to pay it back and/or keep spending (see PCE August 2026: Income & Outlays Show Firm Demand10-1-26).

• After a week where the UST curve and inflation moved in counterintuitive directions (inflation higher, UST lower) and tech equities going into a brief swoon, the moving parts are looking more chaotic with a brief VIX spike above 20.

• The market is signaling some questions around risk appetites (including tech credit), asset allocation (flight to quality for some?), and potentially reviewing underlying assumptions in AI valuation. Inflation pressures remain a threat in a robust earnings season so the conditions are still not UST friendly.

• The sharp rally in long UST came with a backdrop of materially adverse moves in inflation (PPI and CPI) with a $10 per bbl spike in crude across the $100 line. That should not be offering yield curve relief (see CPI Sept 2026: Does Chronic Inflation Need More Treatment 10-15-26, Macro Crosscurrents Rattle the UST Curve and Equity Valuations 10-15-26).

• The FOMC threat appears to be easing even as a strong earnings season gets underway (see Weekly UST Deltas: Bear Macro but Bull UST Move 10-18-26, UST Curves and Cycles: Today in Historical Context 10-18-26). The odds of a hike in the Oct FOMC meeting are now down to 17.2% for 400-425 bps range and 80.0% for the Dec meeting. The odds of 425-450 bps are down to 16.4% from over 44% 1 month ago.

The above table updates the time horizon returns for the debt and equity benchmarks we monitor. In contrast to last week with all negative for the month, we saw 1 of 4 fixed income lines edge back into positive range with the rally in the UST curve. For 3-months, the fixed income benchmarks are all still in the red. For the YTD period, only HY barely made positive range. Duration has been the enemy.

For equities, Russell 2000 remains under siege for 1-month and 3-months after a very good start to the year. Equity returns have been getting dialed back, but the YTD period remains very solid with the exception of the Russell 3000 Growth index. Russell 3000 value has been the winner.

For the tech bellwether table, the week only saw two asset lines in positive range with Apple and the Equal Weight S&P 500 ETF (RSP). The Mag 7 saw 6 of 7 in negative range with only Apple (AAPL) in positive return range. The Semiconductor ETF (SOXX) was punished at -11.8% and sits in last place and is negative for the 1-month and 3-month horizon even as it generated a dazzling + 64.1% YTD.

The Software ETF (IGV) beat SOXX this week with the Semiconductor sector slammed. We cover the tech pain in other charts in this commentary. For the YTD period, IGV has posted a total return of -1.26% vs. +64.1% for SOXX. The worst YTD performer on the list is Oracle (ORCL) at -33.3%.

We already addressed the 1-week return details in Weekly Returns: Benchmarks and ETFs (10-18-26). The 18-14 score showed the effects of tech beatdown on the right with a solid performance in higher quality dividend stocks, upstream energy, and bond ETFs on the UST rally.

We already covered the Tech Check performance in Weekly Asset Returns: Tech Check (10-18-26). The Tech Check mix turned in a horrid set of numbers with a score of 7-25 and some painfully bad returns in the semiconductor and AI ecosystem names (notably Dell).

The 12-20 score for the 1-month returns for the broader mix of 32 asset lines were hurt by 5 of 7 bond ETFs being in negative range. Refined product prices hit costs for Transports (XTN) while the BDC ETF (BIZD) and small cap Russell 2000 sat at the tail end of the bottom quartile with Regional Banks (KRE) also feeling pressure with a big earnings wave on tap from here.

Winners for the month include higher quality dividend stocks as some investors rotated to more defensive exposure. Higher quality dividend stocks are usually rewarded when longer UST rates decline. The top 5 included Consumer Staples (XLP) and Utilities (XLU) along with pharma and dividend heavy Health Care (XLV). Those joined Energy (XLE) and E&P (XOP) in the top 5.

The Tech Check mix had a rough month at a score of 12-20 as AI ecosystem and semi names broadly took a beating after the strong numbers generated across 1H26. We see Dell at -19.8% in dead last in the bottom tier joined by Intel (INTC), Qualcomm (QCOM), Micron (MU), and Broadcom (AVGO). From the software/systems side, we see Oracle (ORCL) and Salesforce (CRM) in the bottom quartile.

The Mag 7 shows 4 in the top quartile (MSFT, META, AAPL, and AMZN) with 2 in the 2^nd quartile (NVDA, GOOGL) and 1 in the 3^rd quartile (TSLA). The top quartile also includes some of the beaten-down software and SaaS names making a slow comeback including FactSet (FDS) at #1, Microsoft (MSFT) at #2, Palantir (PLTR) at #3 with META and AAPL rounding out the top 5.

The 3-month returns for the broader asset mix weighed in at only 10-22, so the summer and early fall setbacks were taking their toll despite solid 2Q26 earnings and decent expectations for 3Q26. The impact of oil-driven cost pressures was evident in Transports (XTN) ranking in last place. The UST curve pain hit Real Estate (XLRE).

The UST curve sent 6 of 7 bond ETFs into negative return range. Mortgage pressures have sent Homebuilders (XHB) into the red zone as monthly payment and affordability pressures weighed on performance along with some labor shortages in select cases and supplier chain costs tied to tariffs.

For the winners, oil prices brought good news for some with E&P (XOP) and Energy (XLE) at #1 and #2. Defensive sectors such as Health Care (XLV) and Consumer Staples (XLP) were in the mix with tech still posting decent enough numbers to get the Tech ETF (XLK), NASDAQ and the S&P 500 in the top tier. Materials ETF (XLB) was still riding the advantage of higher petrochemical prices combined with lower natural gas feedstock costs for the US names.

The YTD returns for the broader group of 32 asset lines still show good overall numbers at 22-10 given the great start to the year for many. That still leaves 6 of 7 bond ETFs in the red on the adverse UST shift. The long duration UST 20+Y ETF (TLT) was 1 of the 4 bond ETFs in the bottom quartile along with IG Corporates (LQD), the Aggregate bond index (AGG), and the UST index (GOVT). The BDC ETF (BIZD) is still feeling the YTD weight of the bad “private credit” headlines and fears around quality of the deal flow in what is a space that grew too quickly for quality comfort.

The biggest winners rode the Iran effects on oil and gas with E&P (XOP) and Energy (XLE) far ahead of the other top quartile names with the Midstream ETF (AMLP) at #4. We see the Tech ETF (XLK) and Health Care (XLV) rounding out the top 5.

The “year of AI” has generated some big return moves (both high and low) as detailed in the YTD return for the Tech Check list above. We have detailed the dramatic moves along the way with the semiconductor and AI ecosystem numbers still defying adjectives YTD even after the recent pain. Dell at +258.8% leaves a lot of room for a week like this past one at almost -23% for Dell. For the YTD list, it took just under a 36% return (Taiwan Semi) to make the top quartile. It took 143.5% (Intel) to make the top 4.

The bottom quartile has continued to be dominated by the software and SaaS-based names that were slammed in the AI displacement wave (“SaaS-pocalypse”). The usual suspects dominate the bottom quartile. We also see the Communication Services ETF (XLC), Tesla (TSLA), and IBM in the bottom tier. Oracle is in 2^nd to last.

The LTM returns at 22-10 show the slow and steady increase in the number of negative LTM returns from a low single-digit asset count to double digit in recent months. The list was 31-1 at the end of June with only the BDC ETF (BIZD) in the red at that point at -13.5%. BIZD has now improved to only being down -2.5%. We see 4 of the 7 bond ETFs in the red for the LTM period. We see positive returns for the short duration 1-3Y UST ETF (SHY), HY (HYG), and EM Sovereign Bond ETF (EMB).

See also:

Weekly Returns: Benchmarks and ETFs 10-18-26

Weekly Asset Returns: Tech Check 10-18-26

Weekly UST Deltas: Bear Macro but Bull UST Move 10-18-26

UST Curves and Cycles: Today in Historical Context 10-18-26

Industrial Production Sept 2026: Capacity Utilization 10-17-26

CPI Sept 2026: Does Chronic Inflation Need More Treatment 10-15-26

Macro Crosscurrents Rattle the UST Curve and Equity Valuations 10-15-26

Mortgage Creep Continues, Curve Shapeshifting Uncertain 10-4-26

Mortgage Rates vs. UST Curves: Spooky Memories to Ponder 9-20-26

The weekly returns across the broader group of 32 benchmarks and ETFs we follow show a net favorable score of 18 positive and 14 in negative range. We see all 4 of the broad benchmarks (NASDAQ, S&P 500, Russell 2000, and Midcaps) in the red with only the Midcaps (MDY) making it out of the bottom quartile and into the bottom of the 3^rd quartile.

The bottom 3 of the 32 asset lines were all tech focused with the Tech ETF (XLK) in last place, 2^nd to last held by the Equal Weight NASDAQ 100 ETF (QQEW) and NASDAQ in 3^rd to last. The small cap Russell 2000 was in the red and landed in 4^th to last with the S&P 500 a few notches higher in rankings in the bottom tier. We also see the fuel-exposed Transports (XTN) in the bottom tier.

The S&P 500 saw 7 of its 11 sectors in positive return range. Despite that relative mix of positive vs. negative by count, the S&P 500 was in the red based on the materially negative performance of its #1 sector, Information Tech, at -6.4% (38.4% of the index weighting). That was joined in the 4 negative S&P 500 sectors by Communications Services (9.8% of the index), Consumer Discretionary (8.8%), and Industrials (8.0%).

The 7 bond ETFs weighed in at 6 of 7 positive with the long duration 20+Y UST ETF (TLT) in the top quartile on the bull flattener that we addressed separately (see Weekly UST Deltas: Bear Macro but Bull UST Move 10-18-26).

The HY ETF (HYG) was the only bond ETF slightly in the red despite the UST rally on HY spread widening. The HY OAS levels are still well inside the long-term median of HY spreads as some modest spread pressure during the week is showing up with tech weakness and equity volatility.

The winners for the week include beneficiaries of the UST rally and the big move higher in oil. We see the Consumer Staples ETF (XLP) at #1 as a defensive, high quality and dividend-oriented sector. We also see Energy (XLE) and E&P (XOP) riding more good news for global oil prices with WTI and Brent materially higher on the week. WTI hit $101 by Friday.

The defensive and the pharma-heavy Health Care ETF (XLV) and Materials ETF (XLB) rounded out the top 5. The chemicals heavy Materials ETF will benefit from Hormuz shipment disruptions given the natural-gas-based feedstock advantages of US-based petrochemical producers. The naphtha-based producers will need to raise prices, and the US players can ride that price trend with their intrinsic cost advantage.

The chart details the weekly price returns of the Tech Check mix we monitor across 32 benchmarks, ETFs, and single names. It was certainly an ugly week with a 7-25 positive vs. negative score. We see 7 of the 8 asset lines in the bottom quartile posting double-digit negative returns.

The pain was pronounced for the AI ecosystem names with Dell at -22.9% in dead last. Applied Materials (AMAT), as a proxy for semi capex, was 2^nd to last at -19.3%. AI plays or semis comprised the bottom 6 of the low quartile in bottom up order from AMAT including Micron (MU), Intel (INTC), Advanced Micro (AMD), and the Semiconductor ETF (SOXX). Software names Palantir (PLRT) and Oracle (ORCL) are at the top of the bottom tier. ORCL is 2^nd to last YTD at -34.2%.

The winners on the week included 5 of the software and SaaS-based services names with Intuit (INTU) at #1 for the week for a name that has consistently been the worst YTD loser in last place. INTU remains on the bottom YTD at -50.9%.

Salesforce (CRM) was at #2 on the week followed by FactSet (FDS), IBM, and Apple (AAPL) rounding out the top 5. Adobe (ADBE) also climbed into the top tier for the week despite being another YTD bottom dweller at -29.9% in 2^nd to last. ServiceNow (NOW) was the last of the top tier for the week in positive range at 1.2%. NOW is in the red YTD in the bottom tier at -7.3%.

In a sign of a bad week, a negative return asset line rounded out the top quartile with the Communications Services ETF (XLC) at -0.5%. Most of the tech check names will need to make their case on earnings calls ahead as investors go hunting for value.

The chart updates the Friday-to-Friday UST deltas in a week that saw a WTI spike and worrisome inflation numbers that nonetheless delivered a bull flattener. That UST rally from 2Y to 30Y came despite unfavorable CPI and PPI releases ( CPI Sept 2026: Does Chronic Inflation Need More Treatment 10-15-26, Macro Crosscurrents Rattle the UST Curve and Equity Valuations 10-15-26).

The lower rates also came with major escalations in the Mideast that took WTI $10 higher to around $101 per bbl by Friday in a move that would typically wag the long end to move higher. Map that move against steep selloffs across the “hot sectors” of tech and the AI exposures, and the plot thickens. The markets saw volatility rising and VIX pushing above 20, in turn generating rumors of hedge fund blowups.

The FedWatch scorecard has calmed down on FOMC risk. The odds of an October tightening to 400-425 bps is down to 17.2% as we go to print vs. 57.6% 1 month ago. The odds of a December 400-425 bps range are now 75.7%. The probability of 425-450 range in December is down to 15.3% from over 44% one month ago.

Credit market concerns are starting to make the headlines with a record amount of AI related securities (direct and indirect) for the OTC markets to deal with for those who seek secondary liquidity. High counterparty risk exposure as broadly defined including collateral concentrations will attract regulatory attention for reserve adequacy in the lender base.

Whenever the patterns move sharply and deviate from recent history (e.g. UST moving lower in the face of materially higher oil and bad news on inflation), the risk of leveraged bets going bad can set off reverberating effects and rumors (the hedge fund blowups, etc.). The coming weeks will be seeing more market risk topics making news.

UST Curves and Cycles: Today in Historical Context

We put the current UST curve in the context of some cyclical histories and ask some questions.

The above chart updates a targeted history of UST curves in place around some critical turning points - whether in economic cycles or monetary policy pivots (or need for a major decision).

I include two boxes with the yield curve details since the curves get a bit crowded in the short to intermediate maturity buckets in the new millennium. The late 1970s, early 1980s, and the late 80s certainly stand apart from the group (visually above and in my personal memory banks).

I line the UST curves up in the boxes in chronological order. The current UST curve we posted (10-16-26) can be framed against those days. Dec 2000 marked what was a tech bubble set to burst (March 2000 NASDAQ peak) and a HY bond default cycle getting underway. Enron (late fall 2001) and Worldcom (summer 2002) were coming down the pike and would add a lot of drama – from the DOJ to the legislative process (e.g. Sarbanes-Oxley in 2002) as well as the capital markets regulatory agenda (what I would call “research lockdowns”).

Looking at the curves on these dates vs. Friday’s close (10-16-26) is just a mental gymnastics drill. I tend to look at UST curves as “more symptom than cause” across economic cycles, but the curve can be a cause for banks and housing via cost of capital challenges. Rate tension flows into bank interest margins as well as asset quality. Rates obviously flow into the corporate borrower level (notably for the highly leveraged floating rate exposed or refinancing schedule heavy) and impact demand in risky asset funding. That will remain a hot topic in private credit today.

Housing and the multiplier effects of homebuilding along supplier chains certainly feel the power of interest rates directly via working capital cycles and new home sales turnover and total volumes. Existing home sales feel it as well as mortgage refi barriers and “golden handcuffs” constrain those with low mortgage coupons on their home. Housing volumes (new or existing) ring a lot of cash registers from suppliers to retail to a range of services including lending, RMBS underwriting, and insurance.

To be clear, the Fed and the curve are always a cost issue. Industry dynamics of course add a lot more to the story. The chart shows that current “high rates” are in substance not really that high in historical terms (Volcker 20% fed funds anyone?). Such rates as today are still seen as a shock relative to 1% fed funds in 2004, ZIRP from late 2008 to Dec 2015, and ZIRP again during COVID from March 2020 to March 2022.

In the timeline, we see a lot of 5% or near 5% 10Y UST yields including 5.1% in Dec 2000 when the tech bubble was a worry. A notable exception among those detailed is the 9-16-24 curve which appeared late in the Biden term. That was when the FOMC was about to go into easing mode. At this juncture, PCE growth was solid and unemployment low. We cover that period in earlier commentaries. That UST curve sits on the bottom of the comps presented in this chart (see Footnotes & Flashbacks: Credit Markets 9-16-24, Footnotes & Flashbacks: Credit Markets 9-23-24.)

Some lookbacks at the key dates posted…

• December 2000 offers a reminder of what came ahead of the Greenspan easing frenzy of 2001 (Greenspan’s Last Hurrah: His Wild Finish Before the Crisis 10-30-22). He took similar actions to bolster the banks against crises in the early 1990s when commercial real estate was a material threat to large, medium and small banks. If AI unravels, Team Warsh will have their legitimate excuse to follow that history.

• The December 2006 date can be seen as the peak year for the residential mortgage excess and mortgage refi wave (125% LTV refinancings, etc.) and the home stretch (stench?) of the housing bubble. The subprime RMBS and outsized counterparty risk and leveraged derivative threat were not accurately disclosed or measured.

  The HY bond credit cycle peak came in June 2007, and the bank system crisis made the HY default threat that much worse on refinancing risk. HY outflows and punitive market-making in HY also fueled market dislocations at the securities firms and securities units of the large banks. Soon all those securities firms would get rolled up under Bank Holding Companies or become BHCs themselves (Goldman, Morgan Stanley).

• The Oct 2023 curve marks the peak for 30Y mortgages and a high for the 10Y UST on 10-19-26 when the 10Y closed just under 5.0% after hitting that level intra-day. The 30Y Freddie mortgage rate was 7.63% at the peak with a range of other mortgage surveys around 8%. Current Freddie rates are 7.4%.

  The UST yield curve threat to mortgage rates today is clear since Oct 2023 posted lower UST 10Y UST yields than we see today even after last week’s curve rally. That is no small risk for current mortgages subject to where inflation heads from here (see Mortgage Rates vs. UST Curves: Spooky Memories to Ponder 9-20-26).

Among the questions from here…

There are always a lot of questions and variables to consider across every cycle, but this current one is trickier than most with “AI bubble” debates; a Mideast war; tariff excess and potential escalation of trade wars; commodity and energy price spikes; and high and/more stubborn inflation.

A volatile (euphemism of the week) President who rejects elections and who is apparently devoid of a basic understanding of economics (“selling country pays the tariff” Huh?) further complicates common sense handicapping.

A few obvious questions:

Will the FOMC deliver one more tightening from here in Dec and send the 3M higher? Will the FOMC move even higher into 2027 and push the 3M and 2Y higher again? Does that drive a bear flattening that does more damage to heavily leveraged borrowers?

With inflation metrics (both CPI and PPI) going the wrong way this week and WTI up another $10 this past week and refined products still in severe supply-demand imbalances, does the long end stay range-bound or do we see fresh upward migration or even steepening?

Will inflation ease if the oil markets crack or the demand side faces more second-guessing on growth that hits GDP? Will the AI ecosystem excess in valuations set off equity market dynamics that flow into the UST curve and drive more flight to quality? Then again, does that also set off a credit repricing cycle with spread widening and the economic fallout there from micro to macro?

To the extent the Democrats take the House as the keeper of the budget flame (regardless of the Senate), will Trump accept the election? If Trump rejects the election and goes “full Insurrection Act”, will the GOP sheep in the House and Senate even make a soft bleating sound? If Trump does accept Democracy, will the market start to handicap/discount budget breakdowns and fallout from inevitable clashes and investigations? These are the kind of scenarios where the market will say, “call me when we get there”.

These are the questions that we all will be wrestling with, but the most immediate threat remains energy costs and inflation. Refined product crises continue from gasoline and diesel. Home heating bills in places like Maine and New Hampshire are painful with estimates closer to $2,000 than $1,000 for a typical 275-gallon tank (I grew up on home heating oil in New England). As with tariffs, the policy reactions to diesel prices (Trump hugging Putin on sanctions) can lead to more problems than they solve. That is not going away.

More speculative elements revolve around AI valuation sentiment and market risk. That sends us back to the profile of the Dec 2000 curve above and how the FOMC immediately responded in the aftermath of the capital markets chaos in 2001. We look at numerous curve histories in the links below.

This past week was a painful one for AI and semis that we cover separately. We saw a range of double-digit negative return weeks across many tech names. Dell, which was way ahead in the return rankings, dropped by almost -23% and Applied Materials (AMAT) posted about -19% for the week. Software was also hit hard in AI-exposed names. CoreWeave (CRWV) is not a semi or classic software play, but it generated headlines with a -25% return for the trailing week as an AI driven cloud infrastructure company. It also has people talking about “credit” again.

Elections and Trump…

As noted, the other subjective wildcard (arguably the wildest of the wildcards) is whether Trump accepts election results or goes full-on Mussolini with a dash of those German guys. ICE of course would need to alter their wardrobes (Does brown make me look fat?) and invest in armbands. That type of political and societal shock will not do wonders for consumer spending or investment planning. The international demand for UST would be undermined since it will inevitably make trade policy even more confrontational.

I am old enough to have watched the JFK funeral on TV and very early in life learned about the iconic Ike, FDR, etc. I’ve kept studying history since. “Not normal” does not capture what is going on today. I grew up around WWII and Korean War vets and VFW and Legion barbecues. It is hard to envision what they would think of these events. Most all of them are dead of course. This current election and White House rhetoric defies US history and has more European flavor from the 1920s and early 1930s.

See also:

Industrial Production Sept 2026: Capacity Utilization 10-17-26

CPI Sept 2026: Does Chronic Inflation Need More Treatment 10-15-26

Macro Crosscurrents Rattle the UST Curve and Equity Valuations 10-15-26

Mortgage Creep Continues, Curve Shapeshifting Uncertain 10-4-26

Mortgage Rates vs. UST Curves: Spooky Memories to Ponder 9-20-26

Some UST curve histories:

Business Cycles: The Recession Dating Game 10-10-22

UST Curve History: Credit Cycle Peaks 10-12-22

Bear Flattener: Today vs. 1994 and Aftermath 10-18-22

Fed Funds, CPI, and the Stairway to Where? 10-20-22

Greenspan’s First Cyclical Ride: 1987-1992 10-24-22

UST Curves: Slope Matters 10-25-22

Greenspan’s Last Hurrah: His Wild Finish Before the Crisis 10-30-22

Wild Transition Year: The Chaos of 2007 11-01-22

UST Slope Update: Some New Inversion Highs 12-8-22

Yield Curve Lookbacks: UST Shifts at Cyclical Turns 10-16-23

UST Moves 1978-1982: The Inflation and Stagflation Years 10-18-23

UST Moves: 1988-1989 Credit Cycle Swoon 10-20-23

UST Moves: The 1990-1991 Risk Factor Pig Pile 10-24-23