Market Insights Recap — Week of October 19, 2026

Hello, I'm Steve Orr, Chief Investment Officer for Texas Capital's Private Bank.

 Lots of doom and gloom in the news. And plenty of bricks in the Wall of Worry for stocks to climb over. What should we be doing with our portfolios? 

The economic activity produces earnings, which in turn power stock prices. So let's start there. Our economy is on track to grow about 3.5% in the third quarter, should stay above 3% this quarter. The last time we were consistently growing 3% or better? 2018. Consistent growth makes planning easier, gets Wall Street excited about higher price to earnings multiples. 

Now, Citigroup piles all the economic releases into a surprise index. When it's above zero, economic data is doing better than Wall Street analyst estimates. Worse than Wall Street expectations, below zero. So easy a caveman can do it. And their economic surprise index has been above zero since December and trending higher. In short, our economy is doing better than the headline suggests, driven by CapEx and consumer spending. A part of that spending is all of us dealing with inflation. Inflation is the rate of change in price levels. As long as it stays flat or declines, we can maintain our purchasing power. 

Ukraine is basically down to throwing Hail Marys against Russia's invasion. And over the last couple of months, they've hit several big Russian diesel refineries. Now, Russia's diesel exports make up about a third of global demand. So everybody everywhere are dealing with higher fuel and shipping costs. This month, we're starting to see those costs bleed into everything that is moved by truck, train or plane.

Clothing and consumer goods retailers are raising prices before the shipping charges fully hit. Producer prices rose at a 6.3% annual clip last month, well ahead of the 5.4% expectations. Consumer prices continue to crawl towards our 4% forecast, reaching 3.7% last month.

Fuel-driven inflation, just like in the 1980s, is one driver pushing bond yields higher. The biggest driver is still steady economic growth, which increases demand for business borrowing, and business growth brings us to the stock market. Lots of rotation going on below the surface. Traders are rotating out of tech and AI cloud companies that are big borrowers. The idea that you can pay back a 9%, or in the case of Volta, an 11.2% coupon by leasing compute time is starting to make a few folks wonder if it's truly possible. Now, we've seen this movie a few times before, and we agree with them.

Over the last three months, the S&P 500 and Nasdaq were up 3.5%, the Dow was basically flat. Not bad for a typical summer September swoon. This week the bull starts year number five. Most year fives are low double digit returns. We'll take it. We talk repeatedly about ignoring the headline news, focus on the facts. And under the hood, last week, while the news networks were wringing their hands, almost 40% of the S&P 500 traded at or above their 20-day highs. Sort of like getting back to work after a summer vacation. We don't usually dwell on the very short term, but I do want to point out that the Nasdaq 100, heavy tech, and small cap Russell 2000 both fell about 3% or so last week while the Dow Industrials rose.

So we're rotating from first half winners in tech and small cap to the first half of the year losers. And that should continue this fall. A broader market away from just tech leading the pack is a healthier market. Pulling all this together for our portfolios, we continue to lighten up on our bond positions by lowering our interest rate exposure. Bonds are getting attractive in real yield terms for our buy and hold clients. Well, following our indicator signals, we've cut down small cap. We look to add value where appropriate. So stay patient. There's going to be lots of noise through the midterm elections; 'til next time.