Episode #27 | October 2026: Three Stocks, Three Catalysts

Before I speak with Rory, I just wanted to give just a very quick summary of some of the key elements and things we spoke about in the most recent October monthly update.

We spoke again about bonds for the second month in a row, or maybe the third actually.

Because as I'm sure all of you are aware, yields have been rising very sharply and that occurred even more sharply or more quickly in September.

But so far equities seem to be little impacted.

Now we think one of the reasons for this is that yields, the overall yield is rising because real yields are going up, not because inflation fears are going up.

Now what's the difference and why is that important? The real yield is the component of the overall bond that is more indicative of sentiment about growth, economic growth.

It also tends to be a good balancing pointer to supply and demand.

And we think what's happening in the bond market is that better than expected economic growth across the world, the US and across the world, and of course increased supply of bonds, both from the public sector, so that's governments with increased fiscal spending in the US, continental Europe and Japan, increased funding requirements, so increased auctions of bonds, but also increased supply from the private sector, and that's particularly related to AI, where we've seen a significant increase in bond issuance there.

So that is what we think is driving bonds, not inflation.

And that's possibly why equities have so far taken in their stride the pretty sharp increase we've seen in bonds.

But a word of caution, volatility in the bond market has increased.

So the change from day to day has definitely increased, and that is a potential concern.

But we'll see how that travels through time.

Apart from the story in the bond market, growth around the world still seems to be doing pretty well.

The US still seems to be surprising on the upside.

The story here of course is quite different.

The RBA had to raise rates again in September.

They may or may not be finished.

The August inflation report suggests that monthly momentum in inflation pressures may have peaked.

Even if it has, the RBA, best case, will be leaving rates unchanged for quite some time.

Worst case, if momentum has not stopped going up, we might see the RBA have to increase rates again.

For now, the market is still expecting a higher probability of a rate hike than no rate change.

And there's certainly nobody talking about rate cuts and that's in spite of the fact that business confidence is weakening, consumption is weakening and of course the housing sector is weakening.

Now if we see those weakening trends accelerate it's possible that could be the turning point for expectations about interest rates here in Australia but for now inflation pressures still remain too powerful for the RBA to talk about anything about the possibility that the next move is still up.

So that was really what we covered in the October market outlook.