Economic Resilience Supports a Broadening Earnings Outlook

1. The Consumer Continues to Show Strength It was a relatively quiet week for economic data and corporate earnings, leaving higher Treasury yields and oil prices in focus. Despite these pressures, the economy continues to hold up, supported by resilient consumer spending and ongoing AI-related investment. The 10-year Treasury yield has moved to approximately 5.3%,¹ but higher borrowing costs have yet to meaningfully slow economic activity.

The consumer remains an important part of that resilience. Bank of America’s latest credit card data showed one of the strongest months of spending growth in four years. In September, spending among lower-income households increased 5.5% year-over-year, compared with 4.9% for middle-income and 4.8% for higher-income households.² After-tax wage growth was also strongest among lower-income households, rising 4.5% versus 3.8% for middle-income and 3.7% for higher-income households.³ This is an encouraging sign that consumer strength extends beyond higher-income households. With employment holding up, wages continuing to grow, and household wealth supported by home and equity values, consumers remain an important driver of economic growth.

2. Rising Yields May Reflect Stronger Growth The continued rise in Treasury yields remains a key market focus, but the reasons behind the move matter. Government deficits, debt issuance and higher oil prices have all contributed to pressure on rates. However, we believe stronger economic growth is also playing an important role. The yield curve continues to steepen, suggesting financial conditions may not be as restrictive as the level of long-term rates alone would indicate.

Inflation expectations provide further support for this view. 5- and 10-year breakeven inflation rates remain around 2.4% and have not widened meaningfully alongside the increase in yields.⁴ If inflation fears were the primary driver, we would expect inflation expectations to move higher as well. Instead, the data suggests that stronger growth is an important factor behind rising rates. While a 10-year yield near 5.3% bears watching, we believe yields would likely need to move materially higher before having a more pronounced impact on economic activity. For equities, the key question is whether stronger nominal growth can continue translating into earnings growth that offsets pressure from higher rates.

3. Nuclear Power Joins the AI Infrastructure Buildout One of last week’s notable announcements was the 20-year power purchase agreement between Alphabet and Constellation Energy, supporting the addition of 890 megawatts of nuclear capacity.⁵ The agreement highlights the growing importance of reliable electricity as data centers and AI infrastructure expand. As demand for power increases, investments in generation and grid capacity are becoming increasingly important.

We continue to see both nuclear and natural gas playing important roles in meeting that demand. The broader opportunity extends beyond power producers to the companies involved in grid modernization, electrical equipment, and infrastructure. AI investment is therefore creating opportunities across multiple industries, reinforcing our view that the benefits of the spending cycle can extend well beyond technology.

4. Earnings and Inflation Take Center Stage The coming week will bring a much busier calendar, with several major banks reporting alongside the latest inflation data. JPMorgan, Wells Fargo, Goldman Sachs, and Citigroup report Tuesday, followed by Bank of America and Morgan Stanley on Wednesday, with Truist reporting Friday. CPI is due Tuesday and PPI on Wednesday, giving investors another look at the direction of inflation while assessing how higher rates are affecting financial companies and their customers.

We continue to monitor oil prices and Treasury yields, but the broader economic growth and earnings outlook remains our primary focus. If consumer spending holds up and business investment continues, that strength should support corporate results. We also see an opportunity for earnings growth to broaden beyond technology, with financials, industrials and select consumer companies positioned to benefit.

5. Fixed Income U.S. Treasury yields declined modestly across the curve last week but remain elevated near their 24-year highs. By Friday’s close, the 2-, 10-, and 30-year yields had fallen by 3, 4, and 4 basis points, respectively. Market participants now turn to the upcoming September CPI & PPI prints being released later this week.⁶

Credit markets strengthened last week, with tightening evident across both investment-grade and high-yield segments. Investment-grade spreads were tighter by 4 basis points to +117, while high-yield spreads narrowed 5 basis points to +343. In the tax-exempt market, municipal yields were mixed across the curve. Front-end yields tracked Treasuries lower, declining 3 to 6 basis points, while longer-dated yields rose 2 to 4 basis points.⁷

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Return for Selected Indices⁸

All charts are for illustrative purposes only. Past performance does not guarantee future results. Yield, if shown, are for informational purposes only, may change, and do not guarantee future income, return, or investment results. An index is a portfolio of specific securities (such as the S&P 500, Dow Jones Industrial Average and Nasdaq composite), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index.

Sources:

1. Bloomberg: As of October 12, 2026 ↩︎
2. Bank of America Consumer Checkpoint: As of October 9, 2026 ↩︎
3. Bank of America Employment Report: As of October 7, 2026 ↩︎
4. Bloomberg: As of October 12, 2026 ↩︎
5. Bloomberg: As of October 6, 2026 ↩︎
6. Bloomberg: As of October 12, 2026 ↩︎
7. Bloomberg: As of October 12, 2026 ↩︎
8. Bloomberg: As of October 12, 2026 ↩︎

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