October 2026 Market Update

Economic Highlights

United States

• The U.S. economy grew 3.4% in Q3 based on the advanced reading from the Commerce Department. This marked a significant increase from the 2.2% growth rate reported in Q2 and the 2.5% rate reported during Q1. Economic growth has been driven by higher levels of investment from the artificial intelligence build-out, as well as high levels of consumer and government spending. Consumer spending rose 3.8% in Q3, the same pace as the prior quarter. Gross private domestic investment soared 19.4%, driven by a 20.9% surge in equipment spending and an 8.4% jump on intellectual property products. Real sales to private domestic purchasers, a proxy that Federal Reserve officials use for underlying demand, rose 4.9%, compared with a 4.6% increase in Q2.
• Within the Q3 GDP report, the government also provided an update on inflation. Headline PCE rose at an annual rate of 3.6% during Q3 while core PCE increased 3.1%. Both readings were well ahead of the Fed’s 2% target and came a day after the Fed decided to leave rates unchanged at its October policy meeting. The latest CPI inflation readings showed headline CPI increasing 3.7% Y/Y and core CPI rising 2.6% Y/Y.
• U.S. retail sales surged 0.8% M/M in September, well ahead of expectations, but below August’s upwardly revised 1.3% gain. Sales at gas stations soared 6.4% due to higher prices, but when removed from the calculation, retail sales only increased 0.2%. Sales at clothing stores and at building materials and garden equipment stores fell during September. Core retail sales grew only 0.1% last month.
• The U.S. manufacturing sector saw an uptick in business activity during October based on the latest ISM Manufacturing PMI. The headline reading of 55.5 in October was up from 54.5 in September with strength coming from production and new orders. The gauges for employment and prices softened a bit last month.

Non-U.S. Developed

• The eurozone grew 0.4% Q/Q in Q3, down from 0.6% in the prior quarter. France contracted 0.1% while Germany grew 0.2%.
• After hitting a 41-month high in September, the eurozone flash composite PMI weakened a bit in October. The headline PMI fell from 53.1 in September to 51.9 in October, driven by modest softening in both manufacturing and services. Output and new orders both increased for the fourth successive month in October, but at slower rates. Weaker growth was evident in both the manufacturing and services sectors. French private sector output moved back into contraction in October, following its first rise in 10 months during September. Meanwhile, Germany and the rest of the eurozone as a whole continued to record activity growth, albeit with rates of expansion easing. A key drag on growth was a renewed decline in business activity in the French services sector. Overall, this PMI report is consistent with quarterly GDP growth of about 0.3%.
• Even Japan is dealing with the prospects of higher inflation after years of dealing with persistent deflation. Headline CPI rose 2.1% Y/Y in September or 2.4% when excluding energy and fresh food. The increase appeared to be driven by price hikes in durable goods and public utilities charges. With inflation now sitting above the Bank of Japan’s 2% target, additional rate hikes may be necessary after hiking 25 bps (to 1.25%) in September to the highest level in 30+ years. This all comes on the heels of 0.4% Q/Q GDP growth in Q2.

Emerging Markets

• China’s economic growth accelerated to 4.5% in the third quarter, picking up from a three-year low of 4.3% in Q2. Exports and demand for technological equipment drove the acceleration in growth during Q3, but this was offset by continued weakness in domestic demand. In September, retail sales eked out 1.1% growth, exceeding the forecast for a 0.6% increase, while industrial output grew 5.5% Y/Y, in line with the forecast. The urban unemployment rate stood at 5.2% in September. Fixed asset investment in urban areas has declined 7.2% Y/Y for the first nine months of 2026.
• While external demand may be boosting economic growth in China, the world’s second-largest economy continues to face massive headwinds from the residential/property sector and weak domestic demand.
• Producer prices in China climbed at their fastest pace in over four years, rising 5% in September, while consumer inflation remains below 1%, reflecting persistent excess capacity and weak demand that are constraining businesses’ pricing power.
• South Korea grew 1% Q/Q in Q3 or 3.4% on an annualized basis, ahead of consensus expectations.  Exports and semiconductor investments accounted for more than half of the growth during the quarter with private consumption falling for the first time in four years.
• We like to remind investors of the higher geopolitical risks associated with investing in emerging markets. Geopolitical risks are always lurking, and that was front and center with the shock outcome from the Brazil elections. Luiz Inácio Lula da Silva’s surprise re-election as Brazil’s president prompted a sharp market reaction with stocks falling 14%. Bond yields rose and the Brazilian real sold off 8% versus the USD. Lula was seen as less market-friendly than his competitor, Flávio Bolsonaro.

Sector Performance – S&P 500 (as of 10/31/26)

Sector Performance – Russell 2000 (as of 10/31/26)

Sector Performance – MSCI EAFE (as of 10/31/26)

Sector Performance – MSCI EM (as of 10/31/26)

Disclosures

Investment services offered by Enterprise Bank & Trust are not deposits, obligations, or guaranteed by the bank or its affiliates. The information provided represents the opinions of Enterprise Bank & Trust and is not intended to forecast future events or guarantee future results. Past performance does not guarantee future returns. This information is for educational purposes only. Investors should consult with their investment professionals for advice concerning their particular situation.

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