Markets
Weekly Market Update - October 19, 2026
By Jason Crumley | Alek Sawchuk, CFA | Sherwin Pasha, CFA 19 October 2026 4 min read
Equity Market Commentary
Last week, North American equity markets diverged. The TSX Composite index pushed higher, while the the S&P 500 pulled back after a hotter-than-expected US inflation report signalled potentially higher interest rates, which also pressured AI-related technology stocks. Meanwhile, escalating attacks on Saudi Arabian oil infrastructure following Saudi strikes in Yemen sent WTI crude oil prices climbing over US$100 per barrel, driving the energy sector higher for both the TSX and the S&P 500.
Third-quarter earnings season kicked off with the six largest US banks all facing share price declines. Investors weighed mixed performances against rising interest rates and geopolitical uncertainty. Despite Citigroup posting its best third-quarter revenue in a decade and Goldman Sachs trouncing estimates following a 32% spike in global banking and markets revenue, both stocks retreated.
JPMorgan Chase missed profit expectations for the first time in nearly three years, prompting CEO Jamie Dimon to warn of sticky inflation and shifting economic conditions. Bank of America was hit particularly hard, with net income dropping 17% after absorbing a US$1.2 billion regulatory penalty for money laundering and sanctions violations. Rounding out the major banks, Morgan Stanley reported record wealth management inflows and Wells Fargo saw a 12% revenue surge in wealth and investment management, though shares of both still slid. Ultimately, the broader banking decline underscored investor caution regarding future dealmaking activity and the threat of higher interest rates dampening core loan growth.
Asset management proved more resilient. BlackRock shares rose 0.7% as earnings jumped 38%, beating Wall Street expectations. The world's largest asset manager attracted US$205 billion in inflows, pushing assets under management to a record US$15.5 trillion. CEO Larry Fink highlighted the strength of the S&P 500 index in driving earnings and revenues. He also outlined strategic pushes into private credit and positioned AI compute capacity as a new asset class to capitalize on the AI financing boom.
Bond Market Commentary
Last week, bond market volatility heightened as investors digested higher-than-forecast US inflation reports against a backdrop of escalating geopolitical tensions in the Middle East that pushed energy prices up. Subsequently, a deterioration in risk appetite drove some investors out of rate-sensitive equities—such as technology stocks linked to AI—and into the relative safety of US treasury bonds. The 10-year Treasury yield moved 15 basis points lower to close the week at 5.08%. Lastly, bonds issued by an GPU-accelerated AI cloud computing provider slipped into distressed territory.
Inflation concerns continue to weigh heavily on the markets. As inflation pushes higher, investors remain concerned about rising interest rates and their impact on individual companies and the broad economy. In the US, September’s headline consumer price index (CPI) inflation rose 3.7% year-over-year, exceeding consensus projections of 3.6%, driven predominantly by surging gasoline prices. Producer price index (PPI) final demand figures similarly accelerated, climbing 6.3% year-over-year on elevated fuel input costs. The combination of September’s CPI and PPI data reflected higher energy costs as bottlenecks in the Middle East persist. In response, swap markets recalibrated monetary policy expectations, pricing in a slightly higher 84% probability of a 25-basis-point rate hike at the Federal Reserve’s December meeting.
CoreWeave, a GPU-accelerated cloud computing provider whose primary customers are AI labs and hyperscalers, relies heavily on debt to purchase AI chips and construct data centres. According to Bloomberg, some of CoreWeave’s fixed-rate senior unsecured bonds—with maturities ranging from 2030 to 2032 and a non-investment grade B rating from S&P—plunged below 80 cents on the dollar, yielding between 14.6% and 15.5%. Consequently, CoreWeave’s five-year credit default swap (CDS) priced in a greater-than-50% chance of default within the next five years. This move into distressed, high-yield territory raises broader questions regarding the sustainability of highly leveraged AI infrastructure financing models, driving greater risk aversion across non-investment grade AI cloud and data center developers, as investors demand higher yields in compensation.
Chart of the week
The chart above illustrates the recent year-to-date total performance divergence between the Russell 2000 and Russell 3000 indexes—on a backdrop of rising US treasury rates. The Russell 3000 is a broad US equity index, with index weighting heavily concentrated in large-cap companies—including mega-cap technology. In contrast, the Russell 2000 is a subset of the Russell 3000 and serves as a primary benchmark for US small-cap stocks. This is an important distinction as we look at the recent performance difference between the two indices.
The performance gap between large-cap and small-cap stocks has recently narrowed as rising rates have created headwinds for many smaller businesses. Since the beginning of 2026, the two-year US Treasury yield (right-axis) rose significantly from 3.47% to 4.75%, accompanied by market expectations for an additional 25-basis-point rate hike by the Federal Reserve by the end of the year. These rate shifts directly affect corporate borrowing costs across the market, creating distinct financial challenges depending on company size, debt structure and leverage profile, and have a greater impact on the Russell 2000 due to its smaller constituents that bring higher debt levels.
Data from JPMorgan revealed that nearly 40% of debt held by Russell 2000 companies (excluding financials) is floating-rate debt, compared to large-cap corporations that typically lock in longer-term, fixed-rate financing. Because smaller companies depend more heavily on short-term bank loans, revolving credit lines, and floating-rate obligations, their interest payments increase when rates rise. Additionally, on average, Russell 2000 companies tend to carry higher debt burdens relative to earnings—which can further amplify the margin pressure created by rising rates relative to large-cap counterparts.
For investors, well-diversified portfolios hold varying levels of exposure to both small- and large-cap companies—making it essential for investors to recognize how varying market forces, such as interest rate changes, can shape relative index performance.
The Week Ahead
Monday: Cdn consumer price index (CPI)
Tuesday: General Electric, General Motors, Netflix earnings
Wednesday: IBM, Tesla, Meta Platforms earnings
Thursday: Blackstone, Proctor & Gamble earnings
Friday: Cdn retail sales, US S&P global composite (PMI), American Express earnings
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Past performance is not indicative of future performance.
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