Weekly Investment Update (10/09/2026)

Market developments during the week included a bond selloff, renewed oil volatility, and a fresh test of confidence in AI. The S&P 500 index closed above 7,800 for the first time on Tuesday. The 10-year U.S. Treasury yield briefly touched 5.36% before easing later in the week, with help from better-than-expected auction results. Despite last week’s softer jobs data, federal funds futures markets are still pricing in a greater-than-80% chance of another 25-basis-point rate hike before year-end. Further detail on our outlook for yields is available in our latest Quarterly Investment Perspective, “The Rising Price of Debt: Can the Economy Adjust to Higher for Longer?”

Oil prices were elevated above $90 per barrel despite President Trump indicating that further attacks on Iran are unlikely before the midterm elections. Overall uncertainty continues to be high, although recent flows of liquid petroleum products through the Strait of Hormuz have increased to around 70% of prewar levels. Energy remains a key reason inflation has been slow to ease, and the New York Fed’s latest survey showed one-year consumer inflation expectations at 3.9%, the highest since May 2023.

AI was once again in the headlines after reports this week indicated that OpenAI's annualized revenue reached approximately $50 billion in September, below earlier estimates of $70 billion. Much of the gap reflected differences in revenue accounting methodologies. Still, the iShares Semiconductor ETF SOXX fell more than 3% on the day, highlighting the relationship between AI-related valuations and the pace of AI revenue growth. 

Overall, we are constructive on equities as the economy remains resilient, supported by strong business investment and labor market data. Third-quarter earnings season begins next week alongside September CPI data, which will be an important component of monetary policy expectations.

Rising Bond Yields in France and the U.S. Have Different Causes

What is happening: Government bond markets remained volatile this week. The U.S. 10-year Treasury yield touched a 24-year high of 5.36% on Wednesday before easing to finish the week little changed. The French 10-year yield briefly approached 5%, its highest since 2002, with the extra yield investors demand to hold French rather than German debt reaching 150 basis points, the widest since the euro area debt crisis of 2012. France now pays more to borrow than Italy and Greece, both of which are rated several credit notches below it.

The selloff in French government bonds has happened despite a draft 2027 budget that cuts the country’s deficit to 5% of gross domestic product (GDP) from 5.4% this year, with two-thirds of the reduction coming through lower spending. Foreign selling has added to the upward pressure on yields. Foreigners hold 57% of French government debt, compared with 33% of Italy’s. With Japanese government bonds now yielding around 3%, the most since the mid-1990s, Japanese investors have been selling foreign bonds and bringing money home.

Why it matters: The underlying concerns around the French fiscal situation are real. France has missed its deficit targets in three of the last four years, and public debt will exceed 120% of GDP next year. No party has held a parliamentary majority since mid-2024, making budgets hard to pass. The economy barely avoided recession in the first half, and growth is not expected to pick up significantly. Adding to uncertainty is a presidential election early next year, with candidates from the far left and far right leading the polls.

Higher borrowing costs are a reasonable response to France’s position, but historical comparisons with Greece, or talk of an international rescue, are misplaced, in our view. Despite the election uncertainty, there are signs that French politics is shifting toward fiscal restraint. Voters rank public debt among their top concerns, and candidates from the center-left to the far right have committed to stabilizing debt relative to GDP by 2032 and capping deficits at 3%. The exception is far-left candidate Jean-Luc Mélenchon, who has proposed canceling the roughly 18% of French debt held by the Banque de France, a step European central bankers say European Union treaties prohibit. Far-right frontrunner Marine Le Pen has pledged €140 billion in net savings by 2032. No leading candidate questions France’s membership in the euro area, and no party wants to be blamed for a financial crisis. Together, these dynamics should help the 2027 budget pass.

Although yields have risen on both sides of the Atlantic, the U.S. story is different. Treasury yields are up about one percentage point this year, largely because the economy has been stronger than expected rather than because investors doubt the government’s finances. The U.S. bond market’s inflation expectations have barely moved, so much of the rise in U.S. yields reflects the higher return investors demand when lending to a government in a strong economy. Large U.S. deficits mean fiscal scrutiny cannot be ruled out, and because bond markets move together, pressure in European bonds can spill over to Treasuries. Prices can still fall if yields rise further, but higher starting yields improve the long-term income available from bonds. Bessemer portfolios remain overweight duration relative to their benchmarks.

Robust Earnings Outlook Amid a Narrow Market

What is happening: The main reporting period for the S&P 500 third-quarter earnings season begins next week in what is likely to be another strong quarter for U.S. companies. Year-over-year earnings growth for the S&P 500 is expected to be 29.5%, which would mark the third consecutive quarter of earnings growth above 25%. That said, the bar for companies remains elevated. The median EPS estimate for all index constituents increased by 1.4% over the course of the quarter, compared with the typical pattern of downward revisions. All 11 S&P 500 sectors are expected to report growth, with five projected to post double-digit growth. Earnings breadth therefore continues to broaden: the percentage of index constituents that issued positive guidance for the third quarter is 62%, well above the 10-year average of 41%.

While earnings growth continues to broaden, market leadership is still narrow. Only 32% of S&P 500 constituents are trading above their 50-day moving average, while just 46% are above their 200-day moving average. With the index reaching new all-time highs earlier this week, this suggests the market is relying on fewer names to move higher. So, while the earnings backdrop is constructive, the market environment remains concentrated. 

Why it matters: Overall, strong earnings growth and improving earnings breadth provide a supportive fundamental backdrop for U.S. equities. The upcoming earnings season is likely to be an important gauge of whether that breadth can translate into broader market participation. Strong results and improving guidance from cyclically sensitive sectors would likely support such broadening, with next week’s bank earnings providing the first test. Strong U.S. bank results would help reinforce the view that despite macroeconomic headwinds, underlying consumer demand remains sufficiently healthy to support broader participation.

We expect this to be the case given continued strength in economic activity, with the Atlanta Fed’s third-quarter GDP estimate tracking at 3.6%. Even with the current market narrowness, broadening earnings growth should gradually pull leadership along with it, creating a more durable foundation for further equity gains.