Weekly Market Update October 26, 2026

The Federal Reserve’s dual task of promoting price stability and fostering full employment has become a bit more difficult. That is because as inflation reaccelerated over the late summer and early fall months, job growth slowed. True, the labor market remains in balance, with slower hiring offset by contained layoffs, but the central bank must guard against raising interest rates too much, which could restrict growth in the job market. Through the end of the third quarter, job creation had averaged 68,000 per month, well below the 150,000-to-200,000 range seen as needed to maintain a healthy labor market and economy. 

The U.S. consumer has proven resilient, helped by a long stretch of tranquility in the labor market. Personal consumption increased by a notable 3.8% in the second quarter, with larger tax refunds contributing to the gain. Too, retail spending was healthy again during the third quarter. The question, though, remains how long this will persist, with inflation—exacerbated by higher oil prices—eroding the consumer’s purchasing power. On point, The Conference Board’s Consumer Confidence Index fell to 81.9 in September, its lowest level since 2014 and below the weakest reading recorded during the COVID-19 pandemic era. 

Meanwhile, Corporate America continues to flourish. Third-quarter earnings growth for S&P 500 companies is forecasted to average nearly 30%, with the bulk of the gain driven by technology. If achieved, this would mark the third-straight quarter of growth above 25%. That said, the business environment may become more difficult, as the higher Treasury market yields increase the cost of capital for companies that need to fund growth initiatives. The recent spending by the technology giants on artificial intelligence (AI), funded in large part by debt issuance, may eventually crowd non-tech entities out of the debt market, restricting their ability to raise capital. Given this backdrop, the stocks of those companies that fail to meet or even exceed financial expectations in the third quarter may fall out of favor on Wall Street. 

Conclusion: We think maintaining a diversified portfolio, led by stocks of high-quality companies with reliable cash flows, may be the best way to stay invested in a market where higher long-term interest rates, sticky inflation, and geopolitical risks argue for selectivity.

Source: Valueline.com