Living up to the expectations others have set for you can be one of life’s greatest accomplishments, depending on how realistic the expectations are and whether you have the talents, capabilities, and resources required to succeed. Continue to exceed expectations and you will be viewed a great success and be well rewarded. The challenge comes when the outcomes start to fall a bit short of the ever-loftier expectations others may hold. Then the response can be quick and painful, falling out of favor and often replaced by the next shiny object or story. If you can set your own expectations rather than strive to meet others’, success may be more enduring and rewarding.

In the investment markets, expectations are set for everything: stocks and their earnings forecasts, bonds and the likelihood of principal repayment, and the economy’s continued growth with manageable inflation. These expectations can be short-term or long-term, but all will be used as the measuring stick against which actual results will be measured. Exceed expectations and the markets respond enthusiastically. Fail to meet, or in some cases, simply meet expectations and stock prices collapse, downgrades are threatened, or recession fears rise.

October’s market environment showed how quickly investors can shift from focusing on forward-looking expectations to actual results. Some of the best performing companies over the last 24 months recently have been questioned whether their business models can continue to deliver the expected results. More significantly these companies are being challenged to show that the significant current and future capital expenditures required to sustain these results will be rewarded with an appropriate return on the investments being made in them. Investors became more critical of the debt financed growth of companies that were once cash flow generating machines.

One of the great benefits of the integrated global investment markets is the wide range of options investors have to allocate their capital to. They can evaluate these options on a number of metrics, though most boil down to whether the current valuation is appropriate for the future expectations of the opportunity. If the current valuation appears to undervalue the future potential, then buy in. If the opposite, or the expectations are too unrealistic, sell and allocate to something viewed as more attractive. In October, investors were repeatedly confronted with these situations as earnings results were released across the AI ecosystem of companies. In many cases, investors focused on the actual vs. expected results and took down valuations to reflect lower expectations. Others rotated to sectors that may not have such elevated expectations and offer more realistic valuations.

Looking at returns across different segments of the markets illustrates this “prove it” investor sentiment. Companies reported reasonably good earnings results but those that failed to meet expectations were hit hard in response. Investors may still believe in the long-term AI story but are starting to demand that companies prove they can continue to deliver the results and do so without excessive amounts of debt-financed expansion. For the month, equity results were mixed. A number of the Mag 7 and AI related stocks stumbled enough to drag the S & P 500 down -0.9% for the month, with approximately -2% of that decline coming on the last day. Much of this last day’s decline came from disappointing AI related stocks. The Russell 1000 Growth fell -6 % for the month, falling -4% on the last day. Conversely, many of the less AI related sectors performed well, with the Russell 1000 Value up 4% for the month. Small cap stocks rose 0.6% for the month. Non-U.S. stocks were down modestly for the month while emerging market stocks fell more due to their high correlation to the AI buildout. Fixed income returns were strong, fueled by interest rates declining 30-35bps across the yield curve. Economic data was mixed with U.S. GDP growing more than 3% in Q3 while inflation metrics ticked higher, with energy costs a leading contributor.

Here are observations on what occurred across market segments in October 2026:

Broad Market Performance¹

Domestic Equity²

• U.S. large caps slipped in October, with the S & P 500 down -0.9% and the Russell 1000 down -0.7%. Growth sold off sharply (Russell 1000 Growth -6.1%) while value gained (Russell 1000 Value 4.4%). The NASDAQ 100 fell -6.6%, while the S & P 500 Equal Weighted rose +5.0%.

• Mid and small caps outperformed large caps in October, with the Russell Mid Cap up +3.2% and the Russell 2000 up +0.6%. Value led growth across both segments, with Russell Mid Cap Value up +5.8% versus -4.4% for Mid Cap Growth.

International and Global Equities³

• International equities declined in October, with the MSCI ACWI ex-USA down -2.8%, hurt by emerging markets. Developed markets held up better, with the MSCI EAFE at -0.7%, and value outperformed growth.

• Emerging markets were the weakest major segment, with the MSCI EM Index falling -8.0%. Growth (-10.2%) lagged value (-5.9%). China declined -7.0% and S. Korea fell -17%.

Fixed Income Markets⁴

• Bonds rallied in October, with the Bloomberg U.S. Agg returning +2.4% as interest rates declined. Longer duration sectors led, including longer maturity government bonds (+5.2%) and mortgage backed securities (+3.1%). High yield (+0.3%) and leveraged loans (-0.2%) lagged.

Specialty Markets⁵

• REITs rebounded, with the DJ Equity All REIT up +4.7%. The S & P GSCI gained +4.8% while the Bloomberg Commodity Index was flat. Bitcoin fell -8.2%.

Sectors⁶

• Energy (+14.0%), Consumer Staples (+11.6%), Utilities (+10.2%), and Health Care (+9.9%) led in October. Communication Services (-15.1%) and Information Technology (-6.8%) were the only sectors to decline.

October’s market environment and results serve as a good example of a few basic principles of investing. Valuations will eventually reflect actual results not just expectations. Diversification benefits investors over time. U.S. fixed income markets can be a safe haven when needed. Markets and investors eventually have a way of working things out. Each of these principles can be the foundation for a strong investment portfolio. During the last two months of 2026 and into next year when there are likely to be periods of elevated volatility and uncertainty, having a well-diversified portfolio that reflects the goals and risk levels of the investors can provide attractive opportunities for growth. Investors may become enthralled with the next new thing and give their heart with zero stipulations, but they are better off if they take careful consideration and realize past mistakes are just new information. Because today, they’ve got their own expectations.

^1-6 All data referenced in the table and comments supplied by Morningstar as of 10-31-2026

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