Markets stay resilient despite oil price spike - October 2026 market update

Energy markets moved back into focus during October. Tensions in the Middle East pushed the price of Brent crude oil up by 13.6% during the month, with prices briefly reaching $117 a barrel. That raised concerns because higher energy prices can eventually feed through to many other parts of the economy.

Oil is used to transport goods and power industries around the world. When prices rise sharply, businesses often face higher costs, some of which may be passed on to consumers through higher prices.

That matters because inflation remains an important concern for central banks. If inflation stays elevated, interest rates could remain higher for longer than currently expected.

However, despite the sharp rise in oil prices, there was little evidence during October that higher energy costs were yet having a significant impact on broader inflation. As a result, financial markets remained relatively calm compared with previous energy shocks.

That said, investors continue to monitor developments closely, particularly as there remains uncertainty around energy supplies and shipping routes in the region.

After a challenging third quarter, government bonds enjoyed a stronger month in October.

Government bonds are loans made by investors to governments. In return, investors generally receive regular interest payments before getting their money back when the bond matures.

Bond prices and yields move in opposite directions. When investors become more comfortable owning bonds, prices tend to rise and yields fall.

During October, government bond yields generally moved lower, helping bond prices recover. US government bonds returned 2.3%, German government bonds returned 1.9% and UK government bonds returned 1.7%.

One exception was France. Political uncertainty and concerns over government debt pushed French borrowing costs higher, with yields on 10-year government bonds briefly rising above 5%, close to their highest levels in more than 20 years.

More broadly, investors continue to focus on government finances around the world. Higher borrowing costs make it more expensive for governments to service their debts, which can create additional challenges when public finances are already stretched.

After several years of rising yields and falling prices, bonds now generally offer more attractive income opportunities than they have for much of the past decade, but it's important to keep in mind the risks and uncertainties that continue to affect markets and nothing is guaranteed.

October also marked the start of another closely watched earnings season for some of the world's largest technology companies.

In recent years, many technology firms have invested heavily in AI, and investors are increasingly looking for signs that these investments can support future growth and profits.

This led to mixed performance across the sector during the month. Some major technology companies came under pressure as investors questioned the scale of spending required to support future AI growth, while others delivered results that reassured investors and supported share prices.

The broader picture was more positive. While the S&P 500, an index tracking the 500 largest US-listed companies, fell 1.7% during October, many companies outside the largest technology stocks performed better, showing that market performance varied across different sectors and businesses.

The global economy has continued to prove more resilient than many expected. Economic data, particularly from the United States, has remained relatively strong. Consumer spending has held up well; businesses continue to invest and demand linked to AI remains supportive for parts of the technology sector.

The biggest uncertainty remains energy prices.

If oil prices remain elevated for an extended period, this could put pressure on household budgets, business profits and economic growth, particularly in countries that rely heavily on imported energy, including the UK and many European economies.

Central banks are also paying close attention. Strong economic growth combined with persistent inflation means interest rates could remain higher for longer than previously anticipated.

While this creates challenges, it does not necessarily mean a weaker outlook for financial markets. Many large companies continue to generate healthy profits and have proven capable of navigating periods of economic uncertainty.

Overall, the outlook remains reasonably positive, but investors should be prepared for periods of increased volatility as markets respond to developments in energy prices, inflation and interest rates.

October demonstrated that financial markets can often be more resilient than headlines suggest.

Despite rising oil prices, geopolitical tensions and continued concerns about inflation, both economies and company profits have remained relatively robust. While risks remain, particularly around energy markets and interest rates, the broader backdrop for investors remains supportive.

As always, short-term market movements can be unpredictable. Maintaining a diversified portfolio and focusing on long-term investment goals remains one of the most effective ways to navigate periods of uncertainty.

Since the end of October, markets have experienced some volatility as investors assess the implications of the US midterm elections, changing expectations around AI, and the outlook for interest rates.

In the UK, the Bank of England has increased its base rate from 3.75% to 4% as it continues to respond to inflationary pressures. These developments took place after the period covered by this October update, and markets may continue to move as investors digest new economic and political developments.

Our investment professionals continue to monitor market conditions closely, and we'll provide a fuller review of November's developments in our next monthly update.