Weekly Economic Update: November 3rd, 2026

Fed stays put on interest rates as GDP roars back to life

The Federal Reserve’s meeting last week concluded with rates left unchanged.¹ The move (or lack thereof) was widely expected given the proximity to midterm elections. Expectations are still strong for an additional rate hike of one-quarter percent (0.25%) at the Fed’s final meeting on Dec. 8-9.²

Despite the generally dour mood, there was some encouraging news last week. Consumer confidence rose significantly from 84.25 (revised up from 81.9) in September to 91.7 in October, beating the consensus estimate of 80.4 by a wide margin.³ That’s great news as we head into the holiday season. It was a shot in the arm after personal consumption expenditures (PCE), the Fed’s preferred measure of inflation, rose modestly.⁴ PCE rose from 3.4% to 3.6% year over year, while Core PCE rose from 3.0% to 3.1%.

Despite this, it doesn’t seem like we’re currently on the verge of anything bad. Gross domestic product (GDP) kicked into high gear in the third quarter, ramping up to a 3.4% annualized growth rate in the third quarter.⁵ Personal spending was the key driver for economic growth in the third quarter, growing at a 3.8% rate.⁴ The bottom line, though, is that income isn’t keeping up with inflation while spending continues to increase. That’s not a great recipe for long-term success, and as the money dwindles the debts will pile up.

The AI and data center build-out also remains a very important factor, and it’s having some far-reaching impact which we’ll get into in the next section. Finally, oil is flowing through the Strait of Hormuz at higher levels than before the Iran conflict began, yet energy prices aren’t coming down. That’s due to a few factors:

• President Donald Trump said he was going to “end things” with Iran after the midterms.
• Companies are still hesitant to ship through the Strait due to renewed attacks on shipping.
• The attacks keep insurance and shipping costs higher.
• There are additional limitations in the region from drone and missile strikes.
• Worldwide inventories are reduced with China stepping up to buy after laying low the past months.

All in all, things could be worse, but they could certainly be better. Last week had a little something for everyone, from the optimists to the pessimists. As always, this is a very mixed picture. We’re nowhere near a recession but we’re far from smooth sailing.

AI trade keeps stumbling

Earnings have been strong, but at times they’ve been overwhelmed by concerns about Big Tech’s spending on the AI build-out. The basic concern is when we’ll see a payoff from all that spending. When the market gets nervous about it, tech stocks go into a tailspin — and as they go, so goes the market.

Last week’s angst was instigated by disappointing news from Google parent Alphabet, whose quarterly update last Wednesday sent shares down 13%.⁶ Revenue from its core search unit fell short, due partly to the popularity of less profitable “AI mode” searches. The company also burned cash at a faster rate than expected.

Alphabet’s market value declined by just under half a trillion dollars last week and helped drag the Nasdaq down 1.4% on the day.⁷ The selling accelerated as we ended the week and the entire sector caught Google’s bug.⁸

We hear the term “AI spend” a lot. Just what is it, and why is it important? The “spend” is basically money being used or borrowed to buy or build hardware and infrastructure (microchips, data centers and power for them, and cloud computing), the software and platforms, people, vendors, regulations and compliance. In essence, these companies have a lot of money but still need to borrow to build all this, and the markets aren’t sure if the companies are overborrowing, overspending or both. Then when these eye-popping spending numbers are reported, the market gets nervous because we have yet to see a payoff.

In addition, more pressure is placed on the capital markets that lend money to Big Tech, making interest rates go even higher. So we go through these ebbs and flows, where the market gets excited about AI and the future then gets nervous when it sees how much companies are spending and the lack of revenue from those expenditures. All this causes a lot of volatility, which will continue until we start seeing results in the form of greater profitability.

Coming this week

• It’s midterm election week! Many races are up for the taking, and it will be interesting to see how things shake out after Tuesday’s voting.
• Now that the Fed meeting has concluded with rates unchanged, the focus will move to jobs. The reawakened initial GDP reading for the third quarter shows a robust growth rate for the economy. If the jobs figures this week are strong as well, the talk will turn to whether a quarter or a half-point rate hike will be warranted in December to lower inflation.
• Monday will again be fairly quiet, with some manufacturing data and construction spending.
• Tuesday will feature factory orders and the Job Openings and Labor Turnover Summary (JOLTS) for September. The last JOLTS report showed 7.1 million job openings.⁹ If this number declines, it can be viewed as a weakening jobs environment (and vice versa).
• The ADP Employment Report is scheduled for release on Wednesday. Last month we added 90,000 jobs, so anything less would be an indication of a slowing jobs market and would argue against the Fed increasing interest rates.¹⁰ Wednesday will also feature the U.S. trade balance and the MBA mortgage applications report.
• On Thursday, we’ll get the usual weekly unemployment claims. Then we’ll see the Bureau of Labor Statistics (BLS) employment situation report on Friday to end the week. Jobs were pretty weak last month, with only 29,000 new jobs created in September.¹¹ Even a doubling of last month’s reading would still be weak. We’re looking at the jobs picture to act as a countermeasure to the strong GDP growth we had last quarter to dampen any wild talk of a 50-basis-point hike at the December meeting.
• Third-quarter earnings reporting continues.¹² As of Oct. 23, 60% of S&P 500 companies have reported results, with 82% reporting positive earnings per share (EPS) and 70% reporting positive revenue. So far, the blended year-over-year earnings growth rate for the index is 30.2%. 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, 19 S&P 500 companies have issued negative EPS guidance and 28 have issued positive. The forward 12-month price-to-earnings ratio for the S&P 500 is 18.7, below both the five-year average (19.8) and 10-year average (19.1).

Sources:

¹ Federal Reserve. Oct. 28, 2026. “Federal Reserve issues FOMC statement.” https://www.federalreserve.gov/newsevents/pressreleases/monetary20261028a.htm. Accessed Oct. 31, 2026.

² CME Group. “FedWatch.” https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Accessed Oct. 31, 2026.

³ The Conference Board. Oct. 27, 2026. “US Consumer Confidence Increased in October.” https://www.conference-board.org/topics/consumer-confidence/. Accessed Oct. 31, 2026.

⁴ Bureau of Economic Analysis. Oct. 29, 2026. “Personal Income and Outlays, September 2026.” https://www.bea.gov/news/2026/personal-income-and-outlays-september-2026. Accessed Oct. 31, 2026.

⁵ Bureau of Economic Analysis. Oct. 29, 2026. “GDP (Advance Estimate), 3^rd Quarter 2026.” https://www.bea.gov/news/2026/gdp-advance-estimate-3rd-quarter-2026. Accessed Oct. 31, 2026.

⁶ Jared Blikre. Yahoo! Finance. Oct. 30, 2026. “Alphabet’s October wipeout hits $758 billion, its worst month ever.” https://finance.yahoo.com/markets/article/alphabets-october-wipeout-hits-758-billion-its-worst-month-ever-211521791.html. Accessed Oct. 31, 2026.

⁷ Yahoo! Finance. “NASDAQ Composite (ˆIXIC).” https://finance.yahoo.com/quote/%5EIXIC/. Accessed Oct. 31, 2026.

⁸ Sean Conlon, Justina Lee and Deena Zaidi. CNBC. Oct. 30, 2026. “Stock market rocked as investors dump tech shares; Nasdaq suffers worst day since June: Live updates.” https://www.cnbc.com/2026/10/29/stock-market-today-live-updates.html. Accessed Oct. 31, 2026.

⁹ U.S. Bureau of Labor Statistics. Sept. 29, 2026. “Job Openings and Labor Turnover Summary.” https://www.bls.gov/news.release/jolts.nr0.htm. Accessed Oct. 31, 2026.

¹⁰ ADP Research. September 2026. “ADP National Employment Report.” https://adpemploymentreport.com/. Accessed Oct. 31, 2026.

¹¹ U.S. Bureau of Labor Statistics. Oct. 8, 2026. “Nonfarm employment little changed in September 2026.” https://www.bls.gov/opub/ted/2026/nonfarm-employment-little-changed-in-september-2026.htm. Accessed Oct. 31, 2026.

¹² John Butters. FactSet. Oct. 23, 2026. “Earnings Insight.” https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_102326.pdf. Accessed Oct. 31, 2026.

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