AE Wealth Management: Weekly Market Insights | 10/11/26-10/17/26

Weekly Market Commentary

THE WEEK IN REVIEW: Oct. 11-17, 2026

Inflation ramps up, upsetting markets

After it appeared inflation was stabilizing (if not mildly improving), the September numbers blew up in our faces. The continued strain of higher energy prices, especially diesel fuel costs, has reignited inflation as we head into the fall.

The consumer price index (CPI) number released on Wednesday was expected to be 3.6%, but instead came in at 3.7% year over year (up from 3.4% last month).¹ Core CPI (total CPI minus food and energy) also popped from 2.4% in August to 2.6% year over year.

The following day, the producer price index (PPI) really spiked.² Consensus was calling for PPI to remain flat, but it jumped to 6.3% instead. Plus, the prior month was revised up to 5.6%. Core PPI moved up to 5% year over year, while last month’s number was revised up to 4.8%. That’s bad news for consumers, since PPI costs will eventually make their way from producers to consumers over the next few months and indicate we’re not any closer to relief from high prices.

Markets predictably didn’t respond well to the readings. Wednesday was a particularly rough day as markets sold off on expectations that the Federal Reserve may actually raise rates again at its next meeting later this month. We saw a bit of a bounce-back on Thursday, even after the hot PPI reports, but that was more of a knee-jerk relief reaction to the prior day. Bond yields declined as investors fled to the safety of bonds amid the volatility of the stock market.³

Markets dropped further on Friday around continued concerns about AI and higher rates, with the Nasdaq sliding 2% by the time markets closed.⁴ If this keeps up, we may have a messy end to October.

What will the Fed do next?

The Fed has painted itself into a corner without a paddle! Pardon the idiomatic metaphor mashup — but now what? With the latest inflation readings this past week, the Fed is faced with a conundrum. Inflation isn’t improving, and the chorus is growing louder for the Fed to tighten and address rising prices.

That would require raising rates, but things aren’t that simple. The economy is kind of so-so, thanks to our national debt, the increased cost of borrowing and higher interest rates. Job growth is suspect, and energy prices are raging.

What’s a Fed to do? On one hand, inflation needs to come down, and that occurs when the Fed raises rates.⁵ The problem is our current inflation is almost exclusively driven by the increased energy costs and raising short-term rates by one-quarter or one-half percent would be like spitting into the wind. In other words, it would be mostly symbolic and futile in lowering this type of inflation. It may look like the Fed is taking action, but it would only be play-acting and potentially damaging to the economy.

The Fed risks slowing the economy further by increasing borrowing costs. The interest paid on the deficit and the debt will also increase, which will take even more money out of the productive economy and could potentially push us into recession. That’s not even considering the Fed making a move before an election and the fallout of appearing political for one side or the other.⁶

Right now, the odds of a Fed rate increase later this month are about 16%, and expectations are for an increase of a quarter point at the final meeting of the year in December.⁷ In our view, that could be a mistake, especially considering the cause of the inflation. We need a solution to the Iranian situation and, to a lesser extent, a conclusion to the Russia-Ukraine war before we start messing with incremental movement in interest rates. We also need to balance our budget and start paying down our debt — that’s what the broader bond market is telling us.⁸ Right now, no one in charge seems to be listening.

Coming this week

• The data will be scant this week, so the markets will parse and stew the inflation data tea leaves and try to guess the Fed’s next move. Hopefully, markets focus more on earnings and let the rate hike/inflation debate take a back seat.
• Data early in the week will include housing starts, pending home sales and the MBA mortgage applications report.
• We’ll see leading indicators and the usual weekly unemployment claims on Thursday.
• Finally, we’ll finish the week with the University of Michigan Consumer Confidence Survey on Friday.
• Third-quarter earnings reporting is in full swing.⁹ As of Oct. 16, 9% of S&P 500 companies have reported results, with 84% reporting positive earnings per share (EPS) and 67% reporting positive revenue. So far, the blended year-over-year earnings growth rate for the index is 29.0%. If that’s the actual growth rate for the quarter, it will mark the third-straight quarter of earnings growth above 25% for the index.
• For the fourth quarter, four S&P 500 companies have issued negative EPS guidance, and four have issued positive. Current valuation (forward 12-month price-to-earnings ratio for the S&P 500 is 19.0, below both the 5-year average (19.8) and the 10-year average (19.1).

Sources:

¹ U.S. Bureau of Labor Statistics. Oct. 14, 2026. “Consumer Price Index Summary.” https://www.bls.gov/news.release/cpi.nr0.htm. Accessed Oct. 18, 2026.

² U.S. Bureau of Labor Statistics. Oct. 15, 2026. “Producer Price Index News Release summary.” https://www.bls.gov/news.release/ppi.nr0.htm. Accessed Oct. 18, 2026.

³ Sarah Min, Sawdah Bhaimiya and Sean Conlon. CNBC. Oct. 15, 2026. “Treasury yields slide as investors flee to safety of bonds amid tech rout.” https://www.cnbc.com/2026/10/15/us-treasury-yields-investors-economic-data-.html. Accessed Oct. 18, 2026.

⁴ Sean Conlon and Justina Lee. CNBC. Oct. 16, 2026. “Nasdaq slides 2% Friday to post worst week since June, pressured by AI sell-off and oil prices: Live updates.” https://www.cnbc.com/2026/10/15/stock-market-today-live-updates.html. Accessed Oct. 18, 2026.

⁵ Peter Gratton. Investopedia. Sept. 2, 2026. “Exploring How Inflation and Interest Rates Interact.” https://www.investopedia.com/ask/answers/12/inflation-interest-rate-relationship.asp. Accessed Oct. 18, 2026.

6 Ben Werschkul. Yahoo! Finance. Oct. 14, 2026. “The Fed faces a politically fraught rate decision on the eve of an election for the third time in a row.” https://finance.yahoo.com/economy/policy/article/the-fed-faces-a-politically-fraught-rate-decision-on-the-eve-of-an-election-for-the-third-time-in-a-row-164456429.html. Accessed Oct. 18, 2026.

⁷ CME Group. “FedWatch.” https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Accessed Oct. 18, 2026.

⁸ Deirdre Dunn. Citi. Sept. 24, 2026. “What the Bond Market is Telling Us.” https://www.citigroup.com/global/news/perspectives/2026/making-it-real-what-bond-market-is-telling-us-deirdre-dunn. Accessed Oct. 18, 2026.

⁹ John Butters. Oct. 16, 2026. “Earnings Insight.” https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_101626.pdf. Accessed Oct. 18, 2026.

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