Monthly Macro Review: October-November 2026

Resilient earnings and expanding activity. October brought substantial rotation out of crowded AI-related positions into financials, healthcare and value, improving breadth. The year-end direction is dependent on earnings’ delivery, energy costs and companies’ ability to absorb higher financing costs.

• US valuations have become more attractive: The S&P 500 trades below its five-year median. The recent correction was mainly driven by multiple compression, while forward earnings remained resilient. Following substantial de-risking, and with seasonality turning more supportive, we prefer selective exposure to companies with visible earnings, strong cash generation and limited refinancing needs.
• European earnings remain supportive, but opportunities are selective: European 2026 EPS growth expectations have stabilized, and European equities trade at c.14.2x forward earnings, with Consumer Staples and Healthcare still relatively attractive. Earnings growth remains concentrated, favouring companies with visible growth and strong execution.
• Technology’s de-rating reflects different risks across the sector: Semiconductor valuations reflect concerns over peak earnings in more cyclical segments, while software companies face greater scrutiny over their long-term competitive positioning and terminal value. Within technology, we prefer areas of AI infrastructure where supply remains constrained, including networking, advanced logic and high-bandwidth memory (see our article on networking here: The next AI bottleneck: Networking).
• Sector rotation has broadened market participation: US Financials gained c.6.8% over the month, against a c.9.9% decline in Technology. European Healthcare rose c.15.9%, while Banks continued to attract diversification flows. This rotation has improved market breadth, with earnings visibility, cash generation and balance sheet strength becoming more important drivers of relative performance.

US activity remains expansionary, with the manufacturing PMI recording five consecutive readings above 50. New orders and backlogs rose to 55.3 in September, while the ISM employment component strengthened to 52.7. The improvement in industrial activity is encouraging, but input prices remain elevated at around 75, pointing to renewed cost pressure. Firm labour demand, low layoffs and stronger job openings could also keep wage and services inflation sticky, limiting the Federal Reserve’s room to cut rates.

Europe’s recovery remains positive but uneven. Manufacturing, services and composite PMIs are all above 50, although the improvement is stronger in AI infrastructure and machinery-related activity than in traditional manufacturing and consumer-facing sectors. Eurozone capital-goods production rose 3.0% YoY in August, while total industrial production fell 1.1%. Intermediate-goods production declined 0.4%, and non-durable consumer goods fell 9.1%. We therefore prefer selected capital-goods businesses with visible demand, pricing power and operating leverage rather than broad exposure to the European industrial cycle.

Energy markets remain under pressure as refinery disruptions restrict the supply of diesel and jet fuel. Around 11% of global refining capacity is currently offline, keeping fuel costs elevated for European industry and transport. The pressure should gradually ease as refineries return to normal operations and new capacity becomes available, although a fuller normalization may take until 2027 or 2028.

Following its recent correction, we see gold as an attractive source of portfolio diversification. Cleaner positioning and continued demand from central banks and Chinese investors provide support. The set-up remains constructive, particularly if real yields decline or concerns around fiscal sustainability, inflation and economic growth intensify driving flight to quality.

In US, midterms elections’ results yielded a divided Congress, led by Democrats, limiting major policy changes but leaving fiscal concerns unresolved. Equity performance around midterm elections has historically improved once political uncertainty fades, although sector effects may differ, particularly in areas such as AI/technology and Healthcare that remain exposed to changes in regulation and government spending.

In Brazil, the election outcome has kept local markets sensitive to fiscal policy, public spending and the direction of interest rates. We prefer companies with strong balance sheets, limited financing needs and dollar-linked revenues.

The valuation reset supports equities, with earnings delivery and lower energy costs central to further upside. We still favor profitable, cash-generative businesses with visible growth: supply-constrained AI infrastructure, financials and healthcare in the US, alongside European banks and capital-goods leaders. Gold and disciplined duration complement that exposure as protection against fiscal, inflation and credit risks.