What happened in markets?
October saw negative returns from most major equity markets, driven by technology stocks and companies associated with artificial intelligence (AI). The US stock market returned -1.7%, but the tech-heavy Nasdaq 100 index saw a decline of -7.4%. Other markets with significant technology exposure include Korea and Taiwan, which returned -16.3% & -9.1% respectively. This, along with negative returns from the Chinese stock market, led to emerging market stock markets overall returning -8.8%.
It’s likely that the weakness in technology and AI-related stocks was due to a combination of growing market scepticism that the huge sums being spent on data centres and microchips will generate sufficient economic returns, particularly given rising borrowing costs for AI companies, as well as rising political opposition to data centre construction. From a timing perspective, this coincided with more general uncertainty over the (then forthcoming) US mid-term elections.
However, despite the negative headline returns, many stocks and sectors away from technology actually delivered positive performance. A measure of US stocks where every company has an equal weighting in the index returned +4.1%, whilst UK equities returned 1.3%. Similarly, areas of the market such as companies involved in infrastructure also achieved positive returns. Consequently, global equities overall delivered a return of -2.5%, a more modest negative return than suggested by some of the headline grabbing technology stocks.
Bonds delivered positive returns, following a period of increasing yields (and lower prices). In October, bond yields fell (and prices rose), with bonds likely benefiting from a move by investors into safer havens, given the turbulence seen amongst technology stocks, and perhaps simply because the previous yield increases had run their course, with a lot bond market negatives having been factored in. During October, US Treasury bonds and UK Gilts returned 2.3% and 1.5% respectively, with investment grade (i.e. higher quality) corporate bonds seeing positive but more modest returns.
The UK’s new chancellor, John Healey delivered a fairly uneventful budget which succeeded in avoiding bond market fireworks, but has ultimately deferred some key decisions for the UK government. The Bank of England didn’t meet in October but a rate rise was announced at the early November meeting, following the other major central banks which increased rates in September.
What did we do in the VT Shackleton funds?
Having made several positioning changes in September (including increasing exposure to bonds), we didn’t make any significant changes in the funds in October. The funds delivered returns in a range from +0.1% for the lowest risk fund, to -1.8% for the highest risk fund. Whilst the funds have exposure to the large technology names which were weak in October, overall fund returns were supported by good performance from bonds and positive returns from several equity strategies, demonstrating the importance of diversification.
What is the outlook?
The outlook for stock markets is complex. Stock market momentum has certainly become more negative, particularly for the large technology companies which have dominated market returns for so long.
It seems likely that the market will continue to scrutinise the spending plans of the large technology companies and seek evidence that the investments being made will generate sufficient economic returns. In some ways, the market movements seen in October could be regarded as a positive development for the longer term, with markets no longer simply rewarding AI-associated spending and imposing more discipline on management teams. It should also be noted that technology valuations have declined materially over the course of 2026 to levels which are broadly attractive, assuming profit forecasts are delivered.
Whilst stock market momentum has become more negative at the headline level, as noted, for many areas of the market away from technology, momentum has actually improved. The economy remains broadly resilient, although a significant slowdown in investments by companies in technology could hit growth in the US, should political opposition to data centres lead to widespread project cancellations. The passing of the US mid-terms has the potential to act as a ‘clearing event’, simply removing a worry which had been present, with the Democrats now in control of both the House of Representatives and the Senate, and of course the Presidency remaining in Republican hands. Historically, markets have reacted well to divided US governments, although there is a danger that a politically wounded President Trump will seek renewed conflict with Iran. The strong Democrat showing at the mid-term elections may increase the likelihood of a Democrat clean-sweep in 2028.
Finally, although modest, recent declines in bond yields should be supportive of stock market valuations.
The post October 2026 investment update appeared first on Shackleton – Britain’s financial adviser.
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