Wall Street Recovery Picks Up Steam On Strong Earnings and Upbeat Econ Data: Oct. 27, 2026

This week’s Wall Street recovery is picking up steam as strong earnings results and upbeat economic data pull in cash from the sidelines and bolster risk appetites. Additionally, lightening oil prices stemming from growing optimism about Middle East deescalation following diplomatic communications between Saudi Arabia, Turkey, Pakistan and Iran focused on finding a resolution to the war are supporting the extension of this relief rally. Interest rates are sinking modestly against the backdrop, and a 10-year beneath 5% is warranting offensive positing on behalf of investors, as robust profit numbers and better-than-expected econ figures amidst long-dated yields falling over 40 bps from their highs less than three weeks ago make current valuations compelling. Indeed, favorable reports from Coca-Cola and UPS coinciding with stronger-than-anticipated Durable Goods, Consumer Confidence and New Home Sales alongside healthy hiring from ADP’s weekly update are underpinning the improvement in sentiment as we approach the best seasonal window on the calendar from a historical perspective. The broad advance has the four major equity benchmarks climbing and 7 of the 11 principal sectors appreciating, while non-energy commodities and the greenback strengthen. Volatility protection instruments are seeing declining premiums in light of sliding hedging demand.

AI Buildout Continues to Support Durable Goods Demand

Broad growth in manufacturing purchases last month signaled ongoing buoyancy in the goods producing sector and is strengthening evidence of continued momentum in the AI buildout at a time when Wall Street is nervous about the potential for overinvestment and credit risk. Orders for durable products rose 1.8% m/m in September, exceeding the 1.5% anticipated and the 0.1% from August. The passenger aircraft, defense jets and machine categories presented the strongest progress, with transactions expanding 28.4%, 5.7% and 1.2% m/m. The computers and electronics, primary metals, fabricated metal items and motor vehicle segments delivered more modest m/m increases of 0.8%, 0.5%, 0.4% and 0.3% m/m, while the other category and electrical equipment group came in unchanged on the former amidst a 0.3% decrease on the latter.

Modest Easing at the Pump Boosts Confidence

Consumer confidence rebounded strongly this month, as a modest alleviation at the pump reduced household pessimism. The headline October figure of 91.7 flew past the anticipated 81 and September’s 84.2. The subindices reflecting present situations and future expectations rose 8.6 and 6.9 points to 120.4 and 72.6, but still, shoppers planned to decrease their spending on services and durable goods in the upcoming months in light of elevated inflation and heavy financing charges. Cost pressure worries were mainly centered on gasoline, groceries and ongoing geopolitical tensions that could further weigh on pocketbooks. The current views and near-term outlooks for jobs, income and business all strengthened, amidst survey respondents remaining bullish on stocks over the next 12 months.

New Home Sales Hold Up Despite High Mortgage Rates

New home sales were relatively steady at a suppressed level last month, as elevated construction costs, lofty valuations and mortgages north of 7% weighed on affordability dynamics. The pace of transactions fell 0.6% month over month (m/m) to 676k seasonally adjusted annualized units (SAAU), a slip from August’s 680k but better than the anticipated 650k. Regional participation was bifurcated as the Northeast and West produced m/m gains of 28% and 21.4%, while the Midwest and South experienced declines of 7.3% and 6.6%. The average and median closing prices rose to $400.4k and $474.8k from $385.4k and $470.8k m/m; however, they were well beneath the year ago levels of $416.8k and $506.8k. Builders have been focusing on unloading inventories rather than building more dwellings in light of a lack of pricing power amidst deteriorating margins, as the months’ supply ratio dropped to 8.4, its lowest reading of the year.

Stable Labor Conditions Continue

Labor conditions remain stable, according to this morning’s high-frequency update from ADP. The average number of workers added to the ranks of the employed in each of the four weeks that ended on Oct. 10 was 16.75k, marking a deceleration from the prior two prints, which arrived at 17.5k and 26k.The result still signal ongoing demand for new employees though. The buoyancy of the last few months may have reduced hiring capacity, as supply limitations could once again be weighing on headline payrolls.

Fed, Mag7 Earnings to Juice Rally Further

The Fed is poised to communicate a patient approach on monetary policy at tomorrow’s interest rate decision, as there’s little evidence that elevated energy costs are spreading to the broad economy. While inflation is well above the committee’s 2% target, core readings of price pressures that exclude gasoline are much closer to the objective than the overall headline, and that 110 basis points (bps) spread between the two offers the central bank additional breathing room as it waits for a potential Middle East resolution. Furthermore, the Treasury market has turned somewhat dovish in the past few weeks, as AI slowdown concerns have manifested onto the curve, allowing Chair Warsh to take both sides of the dual-mandate increasingly into consideration, rather than overly focusing on the cost stability aspect. A fixed-income rally driven by reduced expectations of a December quarter-point increase would provide Wall Street with a terrific setup prior to the earnings releases of 3 of the Mag7 heavyweights this week, but the possible advance may be contained by risks of a blue sweep at next week’s midterm elections, which threatens to raise AI oversight and regulation angst.   

International Roundup

Artificial Intelligence Also Supports South Korea GDP

South Korea’s economy in the July through September period grew 1% quarter over quarter (q/q), surpassing the economist consensus estimate for a 0.7% gain and the preceding period’s 0.6% ascent, according to preliminary data from the Bank of Korea. For the year-over-year (y/y) result, growth slowed from 3.7% to 3.4% but still surpassed the economist consensus estimate of 3%. Private consumption expenditures declined 0.2% q/q, primarily a result of less spending on vehicles, household appliances, financial services and food services. Other areas were stronger. Facilities expenditures jumped 4.1%, largely due to an increase in semiconductor manufacturing equipment. In a similar manner, spending on intellectual property products climbed 2.3% for software, research and development. Exports also expanded, climbing 2.3% with strong demand for semiconductors, machinery and electrical equipment leading the growth while imports were up 2.4%. Regarding production, the agriculture, forestry and fishing category jumped 5.9% while manufacturing was up 2%. Generation of electricity, gas and water supply increased 3.7% while construction and services ascended 2% and 0.2%, respectively.

Japan’s Inflation Heats Up as Policymakers Prepare to Meet

With the Bank of Japan’s rate setting meeting just two days away, this morning’s release of the core Consumer Price Index depicts inflation accelerating from August. After depicting a 2.3% y /y sticker increase for two months in a row, the trimmed mean index for last month showed inflation hitting 2.5%, according to the Bank of Japan. The trimmed core strips out volatile food prices but doesn’t account for government subsidies. A separate index that excludes education and energy related subsidies was even hotter, accelerating from 2.6% to 3.2%, hitting its highest level since October 2023. In a separate release, the central bank reported that inflation for services provided to businesses hit 3.7%, causing speculation that companies are hitting their customers with high fees to offset the impact of more expensive labor. Additionally, soaring freight expenses resulting from the Middle East crisis contributed to the escalated services price pressure. Despite the hotter-than-anticipated releases today, the Bank of Japan has been expected to hold its key interest rate at 1.25% during its two-day meeting ending on Friday after raising in September.

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