Bailey Financial Group Market Commentary October 2026

A Changing Market, but a Resilient Economy

October was an interesting month for investors. While the major market averages finished the month modestly lower, the underlying performance of the stock market was considerably better than the headline numbers would suggest. We saw a meaningful rotation away from some of the largest technology companies and into other areas of the market, including energy, health care, utilities, and consumer staples.

At the same time, the economy continued to demonstrate resilience, inflation remained elevated, and the Federal Reserve found itself balancing strong economic growth against the possibility that additional interest rate increases may be necessary.

The S&P 500 declined approximately 0.9% during October, while the Nasdaq 100 fell 6.6%. However, the equal-weight S&P 500, which assigns the same weight to each of the 500 companies rather than allocation by size, gained approximately 5%. Nine of the eleven S&P 500 sectors finished the month higher.

We believe this divergence is particularly noteworthy. For much of the past several years, market performance has been driven by a relatively small group of large technology companies. October provided evidence that investors may be beginning to look beyond those companies and recognize opportunities in other sectors of the economy.

Whether this broadening of market participation continues will be something we watch closely as we approach year-end.

Economic Growth Remains Strong, but Inflation Continues to Present Challenges

One of the more encouraging developments during October was the release of third-quarter economic growth figures. According to the Bureau of Economic Analysis, the U.S. economy grew at an annualized rate of 3.4% during the third quarter, accelerating from 2.2% in the second quarter.

Consumer spending remained strong, increasing 3.8%, while business investment continued to benefit from substantial spending on technology infrastructure, particularly the equipment and computing capacity required to support artificial intelligence.

Perhaps even more encouraging was the 4.9% increase in real final sales to private domestic purchasers. This measure excludes some of the more volatile components of GDP, including changes in inventories, international trade, and government spending. It provides a useful indication of the underlying strength of private-sector demand.

However, while the economy continues to grow, there are some developments that warrant our attention.

The Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures Price Index, increased 3.6% over the twelve months ending in September, compared with 3.4% in August. Core inflation, which excludes food and energy, increased 3.1%.

At the same time, inflation-adjusted consumer spending was essentially unchanged in September, while real disposable personal income declined 0.3%. The personal saving rate fell to 3.8%, suggesting that some households are increasingly relying on a smaller portion of their income to maintain their spending.

We believe these figures may illustrate one of the more important challenges facing the economy. Economic growth remains healthy, but consumers are continuing to absorb the cumulative effects of higher prices and elevated borrowing costs.

We will be looking closely to determine whether consumer spending can maintain its current pace, particularly if inflation remains elevated and interest rates move higher.

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