Thursday, 10/22/2026 a.m.

• Risk off move hits markets – U.S. equities sold off this morning as rising oil prices and a continued rotation out of AI stocks hit sentiment. The Nasdaq was the worst performer of the major benchmarks, falling 1.5% in early trading, while the S&P 500 is down 0.8% and the Dow Jones 0.3% so far. This follows a weak tone in global markets overnight, with the Chinese CSI 300 index closing 1.8% lower, marking the start of a bear market as its losses since June top 20%. Bond markets are generally benefitting from the flight to safety move, with the U.S. 10-year Treasury yield down 8 basis points (0.08%) taking this close to the 5% marker. However, the sell-off in pockets of European bond markets continued as investors continue to worry about the sustainability of sovereign debt, with French OATs again the worst performer as yields move 5 basis points higher. Brent oil hit $112 per barrel, its highest reading since May, while WTI is trading at $100.
   
• Rotation out of AI stocks continues – Meta's Q3 earnings report – released after market close yesterday - showed a stronger than expected gain in revenues and bullish guidance around future capex plans. However, the stock has opened lower this morning as investors seemingly worry about the cost of this capex boom. The five-year credit default swap on Meta's debt has moved to a fresh high, with the cost of protecting debt on other hyperscalers having also increased in recent weeks. Following an extraordinary run in technology stocks, markets are becoming more demanding around evidence of the payoff from high investment in AI and concerned about the sustainability of this spending amid higher interest rates. Tapping into these concerns were disappointing results from Lam Research Corp, a chip equipment maker, and indications from Tesla that it would cut back on spending plans. We remain constructive on large cap stocks amid generally strong balance sheets, robust near-term earnings, more moderate valuations and a solid economic backdrop. However, investors should look to ensure that they have good diversification in portfolios and avoid overconcentration or leverage in single name stocks, sectors or investment styles such as growth.
   
• French bond sell-off sparks painful Eurozone debt crisis memories – The yield on the French 10-year benchmark government bond is now above 5%, up from 4% just a couple of months ago. While a global bond sell-off has pushed yields higher everywhere, this distress is more pronounced in France, with the spread between the yields French and German debt up to nearly 1.8%, the highest since 2011. This will of course bring back memories of the Eurozone debt crisis, during which investors questioned the ability of member states to meet debt obligations after the financial crisis, and worried that some may be forced to leave the single currency union. The good news is that this crisis created mechanisms to help mitigate these risks, first and foremost a commitment by the European Central Bank (ECB) to purchase unlimited quantities of sovereign debt from member states that were taking the necessary steps to address debt concerns. This backstop does not mean that conditions could not get worse in French bond markets. Bond yields in affected Eurozone member states spiked much higher before ECB interventions in the early 2010s. And, political instability in France might make markets question if there is the political capital to deal with long standing debt issues and qualify for ECB support. Still, the experience of the 2010s should make us more confident that the Eurozone has the tools to manage distress in debt markets without members being forced to default or exit the currency union.

James McCann;
Investment Strategy

^{Source for all data: Bloomberg, FactSet}