Capital Market Outlook

Summary

• Crude oil prices approached April highs while diesel prices remained above $6 per gallon in 2026.
• The current El Niño event is projected to be one of the strongest on record with an 83% probability of exceeding the strength of any episode since 1950 during October-December.
• El Niño is causing extreme weather including wildfires in Indonesia, the weakest monsoon season in India since 2015, and severe flooding from Paraguay to Peru.
• Global food prices rose 5.8% year-over-year in September according to the United Nations Food and Agriculture Organization.
• Heavily import-dependent countries in the Middle East, Africa, and parts of Asia face higher vulnerability to agricultural price shocks compared to developed economies.
• Countries with food as a large share of consumer spending include the Philippines (36%), Indonesia (33%), Egypt (33%), India (28%), and Vietnam (26%).
• Developed economies like the U.S. (6%), Canada (10%), and Germany (11%) are better insulated from food-related inflation shocks.
• Data center construction increased more than 60% over the past year and now accounts for 11% of private nonresidential construction.
• Data center construction spending reached an $85 billion annualized rate in 2026 compared to roughly $49 billion the previous year.
• Critical components for AI infrastructure such as generators, switchboards, chillers, and transformers face long lead times.
• The S&P 500 ended October slightly lower with a decline of almost 1%.
• The Philadelphia Semiconductor Index experienced a 19% intramonth drawdown in October.
• The 10-year U.S. Treasury yield spiked above 5.3% on October 5 for the first time since 2002.
• The Russell 1000 Value Index outperformed its Growth counterpart by 10 percentage points in October.
• The Russell 1000 Value Index was up 23% year-to-date while the Growth index was down almost 1%.
• The equal-weighted S&P 500 outperformed its market-cap-weighted counterpart by its widest monthly gap since 2009.
• 76% of S&P 500 constituents outperformed the index in October.
• The Bloomberg Commodity Index gained nearly 30% year-to-date.
• The Bloomberg Commodity Index outperformed the S&P 500 which gained 11% and the Bloomberg U.S. Aggregate Bond Index which lost 1%.
• Global sovereign debt surpassed $110 trillion in Q2 2026.
• The CIO maintains an overweight position in Equities with a preference for U.S. stocks.
• The CIO views higher bond yields as attractive for adding income and extending duration.
• The CIO favors commodities as an inflation hedge and diversifier in portfolios.
• The CIO identifies potential opportunities in Industrials and Materials sectors focused on precision agriculture, water management, and crop protection.
• The CIO sees potential opportunities in Value, Small- and Mid-caps, and select non-U.S. markets including Emerging Markets and Japan.
• The CIO believes the AI investment cycle remains in its middle innings.
• The CIO forecasts real U.S. GDP growth of 2.4% for 2026 and 2.3% for 2027.
• The CIO forecasts CPI inflation of 3.4% for 2026 and 2.7% for 2027.
• The CIO forecasts the Fed funds rate to end 2026 at 4.13% and 2027 at 4.38%.
• The CIO forecasts the unemployment rate to be 4.2% in 2026 and 4.1% in 2027.
• The CIO maintains a slight overweight to Emerging Markets equities due to earnings strength.
• The CIO notes that Emerging Markets equities are heavily concentrated in East Asian markets with substantial technology exposure.
• The CIO views the market as transitioning toward a mid-cycle phase with broader but more measured returns.