Market Insights Recap — Week of October 5, 2026

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

Let's run through our gripes and see if we should be making any changes to our portfolios. Gripes is the general picture. Rates, inflation, policy, economy and stocks. Now, in general, the 0 to 2% inflation era of the last two decades is over. We're several years into a reflation period, where we're returning to 3 to 4% inflation. That brings higher commodity and stock prices. Not all bad. It also means labor costs will have to rise for employees to maintain their purchasing power. Now reflation cycles usually last 15 to 20 years. They have some sort of wash out, debt, currency, tulip bulbs, the fiber optic bus of 2000. You get the picture. 

Stocks, especially companies geared towards commodities, will continue to do well. Our medium-term outlook remains green, so no big adjustments on stock positioning for reflation. 

Inflation is also a factor in pushing up interest rates. The personal consumption expenditure series is running at a so-so level of 3.4% as of last month. The PCE is the Fed's favorite inflation measure, and we expect all inflation gauges to drift higher in the next couple of months as diesel prices work their way through the supply chain. But the primary driver behind the 1.25% rise in the 10-year treasury rate are real rates. This is the rate that investors earn after inflation is removed. Its primary driver is economic growth. And we're on track to finish the year with very solid 3% growth.

Now for total return investors, we've lowered our interest rate exposure as we think the rate rise is not yet over. For buy and hold investors, there are some parts of the intermediate bond market that represent good value and are worth taking a look at with your advisor. That is especially true for municipal bonds. Now stocks do not mind 3 to 4% inflation as long as it's not jumping around and earnings are growing. This year, the S&P 500 is on track to post near-record 33% gain in earnings.

Next year Wall Street is penciling in a very nice 16% gain in earnings. Both of these results will help keep valuations at reasonable levels and our bullish thesis intact. Delta reports on Friday. I'll be back in two weeks with a more detailed look at the third quarter's earnings season. Meanwhile, in general, reflation, rates, moves not over, inflation steady at 3.4% drifting higher, policy. There's a lot going on in D.C. but nothing's going to happen 'til after midterms. Economy, 3% growth. Stocks still in a bull. Moderate commodity exposure and cash are performing well. Low bond exposure; 'til next time.