Global Equity Bullets | October 2026

Global equities are set to finish October close to where they began. However, the apparent stability on the surface hides significant movement underneath.

In the US, the S&P 500 is on track to end the month roughly flat, but this masks a notable rotation. The S&P 500 ex-AI index gained around 6% in October, with Energy and Consumer Staples each rising by double digits, while Information Technology and Communication Services both fell more than 5%. The Treasury market was also highly volatile. The 10-year yield rose above 5.3% before falling almost 40bp, as investors sought safety from French fiscal stress and selling-pressure in AI names.

In Europe, concerns about the sustainability of French public debt and political uncertainty pushed the spread between French and German 10-year government bonds above 170bp, its widest since 2011. Equities came under pressure early in the month, with banks leading the declines, but the SXXP has since normalised and is on track to close the month flat.

In Asia, the MSCI Asia Pacific Index fell more than 6% in October, driven by losses in Korea. This was mainly due to multiple compression from souring investor sentiment on AI, even though company earnings remain solid.    

“AI winners vs AI at risk” pair trade has given back 100% of its 2026 YTD gain. After a strong start, the relative performance of the basket of AI beneficiaries versus the basket of stocks exposed to AI disruption climbed almost uninterruptedly to a peak in late June. A prolonged correction followed: the spread halved by August, tried to stabilise between September and mid-October, and then lost support in the latest sessions, falling back to where it started.

The move points to a sharp unwinding of positioning on the AI theme and a change in the way the market looks at AI winners. Focus is now on monetization and capex funding rather than ambition and growth. The indiscriminate nature of the sell-off has left some quality names trading at attractive valuations: selectivity and bottom-up analysis are key to finding them.

With shares down almost 20% YTD, McDonald’s is on track for its worst year since 2002. Its forward P/E has fallen to c.18x, the lowest in a decade outside of COVID. Yet, consensus still expects 2026 revenue growth of 5% – higher than in 8 of the past 10 years. What’s driving the underperformance? 

The answer is that this is a de-rating, not an earnings collapse: concerns about weak consumer spending and GLP-1s are lowering investor expectations for future growth. Low-income consumers appear to be cutting back. After 4% growth in Q1, US same-store sales rose just 0.8% in Q2, and management now expects a small decline for Q3. International markets are holding up better, but the direction of travel is clear.

GLP1s (a new class of weight-loss drugs) add a second dimension. For now, what is visible is a mix shift. GLP-1 adults cut sugary drinks and trade down to smaller, protein-rich items such as Happy Meals, Chicken McNuggets and Filet-O-Fish. In response, the company is exploring bowls, grilled chicken and egg bites. The risk appears to be less about losing customers than about smaller orders, and the market is pricing it in before it shows up in the numbers.

US financial markets have experienced an exceptional period of activity. SpaceX completed the largest IPO on record, raising approximately $86 billion, while OpenAI secured $122 billion in private funding commitments, highlighting the extraordinary appetite for investment, particularly in technology and AI. Corporate capital allocation has also reached unprecedented levels, with Nvidia expanding its share buyback programme by $150 billion. Meanwhile, merger and acquisition activity has remained strong, illustrated by the $55 billion acquisition of Electronic Arts and the proposed $85 billion acquisition of Norfolk Southern by Union Pacific. The investment management industry has also achieved significant milestones, with Vanguard’s S&P 500 ETF becoming the first ETF to exceed $1 trillion in assets. These developments demonstrate the remarkable scale, liquidity, and adaptability of US capital markets.

Algebris Investments’ Global Equity Team