Finally, a break in the sovereign bond crisis, with yields declining. Have we reached the top? Too early to tell. In Europe, the situation, albeit dire, is still under control as 2-yr yields haven’t shot up like in 2011-12. Watch out this week’s US CPI and US PPI with great interest, as they will provide an important update on inflation. The S&P 500’s multiple is now in line with its 10-year average at 19.1x, but all eyes are on inflation, rates, sovereign yields, and Central Banks. Earnings for 3Q26 are starting with good results so far; watch for a further upgrade of bottom-up forecasts if the trend continues. While traffic in the Strait of Hormuz has recovered, bottlenecks in refined products and a possible escalation by Iran/Houthi keep the Brent near $107. The biggest tail risks are the US Economy falling into a recession (15% chance in the next 12 months), resurging inflation, revenues/earnings/guidance not matching forecasts, a surge in long bond yields coupled with a USD crash, followed by damages done by tariffs/government policies, and adverse geopolitical outcomes.

Major market events 12th – 16th October 2026

Economic data highlights of the week

Mon: JP, CA, BR – Holiday, IN CPI (9/26)

Tue: JP PPI (9/26), DE CPI (9/26), US ADP Employment Change Weekly

Wed: CN CPI (9/26), CN PPI (9/26), EU ECB President Lagarde Speaks, UK BOE Governor Bailey Speaks, SP CPI (9/26), EU ECB President Lagarde Speaks, US CPI (9/26), US Beige Book 

Thu: JP Industrial Production (8/26), UK GDP (8/26), CH PPI (9/26), FR CPI (9/26), UK BOE Governor Bailey Speaks, EU Industrial Production (8/26), US Retail Sales (9/26), US PPI (9/26), US Philly Fed Manufacturing Index (10/26), US Initial Jobless Claims, US Atlanta Fed GDPNow (3Q26), US Fed’s Balance Sheet 

Fri: UK BOE Governor Bailey Speaks, US Fed Chairman Warsh Speaks, EU CPI (9/26), US Industrial Production (9/26)

Performance Review

Source: Google

InflectionPoint reports:

* It is time to speak about FROGS – not the cute animal, but FRance Oversized Government and Social security. Paris is officially the sick man of Europe, and Madrid is not too well, either. Violent protests in France by students, outraged by cuts to schools, and in Spain, where there is a housing crisis, dominated the headlines, and brought the resignation of PM Pedro Sanchez, with new elections in November. In the second largest EU state there is lack of political will to pass through sweeping reforms and budget cuts, so PM Lecornu has his hands tied, although frontrunner candidate Marine Le Pen has promised to lower the yearly deficit to 3%, in line with the recommendations of the EU. In an important speech, the Governor of the Banque de France, Emmanuel Moulin, has said that he does not think that a bailout of the country by the ECB will be needed, and points to yields on the 2-year OAT to show that there is not too much stress in the system, even though long yields are definitely concerning. Exploding yields on the short end was what happened in Italy during the crisis of 2011 and 2012, which brought a new PM to power (Mario Monti) with the task to cut expenses and restore credibility. And then of course there was Mario Draghi’s ‘whatever it takes’, which is where things really started to turn around. He devised the OMT – Outright Monetary Transactions – as a powerful weapon to restore order in the markets, which, so far, has never been used, and hopefully, never will. France will hold presidential elections in April 2027, but if it is serious about getting its finances in order, it must find a political will to reduce the reliance on the state. Yields last week were mostly stable, but the level touched by 10-year OATs was the highest in 20 years. If what happened in 2011-2012 is to be any guidance, the spread with Bunds, presently around 140bps, might widen to 200bps before the panic button is being hit. That said, I recommend you keep a close eye on 2-year yields as well.  This week’s CPI – on Wednesday, and PPI – on Thursday, will be important data for the yields, on top of Chairman Warsh’s speech on Friday. It is widely expected that the Fed will hold in October and hike in December: the big question is what’s going to happen in 2027. At the moment the world’s central banks are in a hiking mode, as they want to burnish their credibility in putting out the fire. There are many explanations for the rise, with the war in the Middle East, government spending and deficits, the strength of the (US) economy, and the rise of the term premium ones of the most frequently cited, and let’s not forget political elections, both in the US and Europe, with violent protests recorded in France and in Spain late last week. The focus appears to be on excessive deficits; Governments are now required to increase their defence spending at the cost of reducing welfare, which citizens are fighting. This is a global problem, and many blame Japan’s low rates for it; to show that it means business, the BoJ should hike once again in October, or in December, together with the Fed. Recent speeches from Governor Ueda point to a continued increase in rates, although he did not mention October, making a rise this month less likely. It won’t be sufficient to turn the tide, but it’s a further step in the right direction. The ‘problem’ is that the outlook for December 2027 sees 2 more hikes, versus a Fed which is supposed to stay put.  Nevertheless, I still think that 2026 is not 2022, and rates are likely to stay higher (but it is of paramount importance to reduce the speed at which they are continuing to grow, just like the gamma in an option). 2022 saw many coordinated hikes to reduce the massive inflation brought by the end of the pandemic: it is, in recent terms, the most painful year to remember, as both fixed income and equities were down. In 2026, the drivers are different: certainly the price of oil boosted by the conflict in the Middle East, but also a resilient economy, particularly in the US, which allowed the country to thrive in the face of perhaps the biggest energy shock ever (compared to 1973), and finally, the most contentious point: ever rising government deficits. As for the Fed, it is becoming clearer that, at this point in time, the dual mandate of price stability and full employment is heavily tilted towards the former, and this brought the market to reprice risk. October is another very volatile month for global equities, but it usually ends in the black for investors. One important news is that, albeit with no radio and no lights, traffic is picking up in the Strait of Hormuz, with the Iranians being pressed to return to the table by the crumbling of their economy. As many commentators have observed, the closing of Hormuz is indeed a double-edged sword. Brent Oil is still above $105 in part because of a bottleneck in refined products, and while the release of the Strategic Petroleum Reserve which happened last week can definitely help, it does not fix the problem itself. The US and Iran are still talking, but it is difficult to determine an outcome as there is profound distrust of the other in both camps. The S&P 500’s multiple has risen to 19.1x last week, putting it below with the 5-year average of 19.8x, and in line with the 10-year average at 19.1x, albeit with the exception of superior earnings growth (25%+) at present. I continue to remain optimistic on earnings and on the continued climb of the leading US Indexes, barring major shocks from policy, inflation, and geopolitics. There has been an update regarding a new, 12-month target by Ben Snider of Goldman Sachs, in which the strategist updated his top down forecast on earnings to the higher levels indicated by the bottom-up approach. with forecasts of S&P EPS raised to $415 from $385 previously, and to $460 in 2028, highlighting (and I completely agree with his approach) that it will be earnings, not multiples, to drive the market higher, to 8,700 by the end of September 2027, with an average multiple which is consistent with the current market multiple (around 19x). AI Capex is still a very important driver for S&P 500 EPS, so watch it closely, but the companies must have a return on their investment, too. Still keeping equities to buy (with the famous 3% weekly stop), and keeping bonds to hold. Valuations matter: Japan has really impressed with its performance this year, and it would be well worth considering to include the Asian country in portfolios, but I still recommend hedging the JPY. I believe that the interventions, however massive, cannot be a long term solution unless the Bank of Japan significantly hikes its 1.25% rate. PM Takaichi recently put forward a bill that would cut tax on food to 1% from 8% from 1 April 2027, for a duration of 2 years, as a temporary fix for the cost-of-living crisis PM Burnham is so desperate to tackle in the UK. Any case it goes, it’s a ‘brave new world’ for Japan, as the last 30 years of policy and deflation/low inflation are completely wiped out. The current cycle of hikes is already the fastest since 1990, and it might be not over yet. Finally, a word on Italy, whose FTSE MIB Index managed to grow above 50,000 points, a target set in the fateful 2000. While overall growth remains slow, companies are faring much better, thanks to markets diversification, and are bringing the Italian know-how to the world. I am expecting this positive trend to continue, and certainly to outperform the broader Euro Stoxx 50 index. It’s been a good couple of years, but the party’s not over (yet). Obviously, for the country to thrive, the global markets ought to do well, too. 

* After a 2Q26 growth of 2.2%, GDP forecasts for 3Q26 are good, with the Atlanta and New York in agreement on a positive direction. The current P/E ratio of 19.1x is below the average P/E ratio of the last 5 years at 19.8x, but in line with the 10-year average at 19.1x. The multiple has been coming down from as much as 23x late last year as yields rose, and only an incredible run in earnings allowed the index to make further progress while its multiple contracted. One of the major differences of the current cycle relative to the dot.com boom is that then many companies were thriving on expectations of future sales and no earnings, but now even start-ups (Palantir did raise to the challenge with an accelerating 19% quarter on quarter revenue growth, up from 16% in 1Q26) do have tangible revenues and earnings, so the market is on a much sounder footing than then. One source of worry is represented by the very high yields on global debt, caused in part by a sticky, recurring inflation: the World’s Central Banks will have to come to the rescue by increasing interest rates. However, with the S&P 500 clocking 25%+ earnings growth for 3 quarters in a row (3Q26 is an estimate), eventually it will shine even if it will have to navigate a few rate increases. A very influential voice, such as that of Goldman Sachs’ CEO David Solomon, said that AI will lead to opportunities, as well as inevitable job losses, and was painting a rosier picture of this new technology. After the Space X listing, Anthropic is in a pre-IPO phase, and appointed Morgan Stanley and Goldman Sachs for leading roles in its offering, and with a potential debut on the Nasdaq in November, and a success of one of the most hyped companies ever is important to lead the markets higher. Open AI, on the other hand, has recently said it won’t seek an IPO in 2026. 

*  The Federal Reserve unanimously decided to raise rates by 25bp at the September meeting, and brought the rate to 3.75-4.00%.  It is now expected that the FOMC, under the guidance of new Chairman Kevin Warsh, will raise rates one more time before the end of the year, most likely in December, which is understandable given the strength of the US economy and the threat of inflation, given that the disinflation which was expected did not quite materialise. They will have access to one more entire set of data (CPI, PPI and Core PCE Price Index) before they meet again. The September labour report on Friday was a (positive) surprise in this world of inflation: with slower growth and higher unemployment Washington can take a break in its hiking cycle. This week’s CPI and PPI will also share valuable data on how the fight against inflation is going. What’s most important is the speed at which the Fed will raise rates; while Chairman Warsh said the bank will be on hold in 2027, the market disagrees, forecasting two more hikes next year on top of the one in 2026, bringing the official rate in December 2027 to 450-475. I wonder if all this growth we are seeing in 2026 so far has been the result of the Fed’s decision to lower rates by 175bp in the last two years.  

* Yields on US 10-year Treasuries have reached 5.19%, and at least stopped rising last week, in line with European government bond yields. While in 1999 they were even higher, and the Fed was hiking, not easing, we definitely need yields to stop continuing to grow to have a more constructive scenario. We seem to be on a struggle to get there; and on top of this I cannot yet recommend the US Debt on their public spending plans. Furthermore, I have stopped recommending European Debt on this dramatic yields increase, which seems to be driven by investors fleeing fixed income as an asset class. Legendary investor Jeffrey Gundlach said that there might even be a haircut on US Treasuries, which never happened before. The potential opening of a sovereign crisis is something that must absolutely avoided. The US Deficit is currently about 6% of GDP and neither the Republicans nor the Democrats want to reduce it. Higher borrowing costs will be felt across the balance sheets of most states, potentially further reducing growth. Regarding earnings, I continue to remain optimistic, particularly on technology (the main driver for the S&P 500). Ben Snider, who has taken up his post as Chief US Equity Strategist from legend David Kostin, has a bullish forecast of $415 per share for the S&P 500 in 2027, with a target price of 8,700 in 12-months, while the most recent bottom up forecasts see 2027 earnings at $420.59 and this level is likely to rise further after the 3Q26 report.

Source: FactSet

* The US GDP for 2Q25 came in at 2.2% according to the latest estimate. The Atlanta Fed GDPNow model forecast for 3Q26 is in positive territory, with a current reading of 3.6%, down from 3.7% last week. It is well above the Blue Chips consensus, which are presently at 2.5% and raising. Last quarter, the Atlanta Fed’s model was the one closest to the actual GDP results. The New York Fed’s Nowcast model, which is less volatile, has its current forecast is 2.65%, up from 2.46% last week. I believe it is prudent to make an average of those two forecasts to get to the real number. Introducing a forecast for 3Q26, with earnings expected to climb by 29.6%. compared with a forecast of 29.2% as of September 3oth, with revenue growing by 12.4% vs 12.2%. It is very important to note that analysts have been increasing numbers for 3Q26, even after the impact of the war, while usually they would cut them at this point down the quarter. For 2026, earnings growth is forecasted at 32.7% vs 32.4% as of September 30th, with revenue coming in at 12.5% vs 12.4%. Introducing a new forecast for 2027, earnings growth is forecasted at 15.8% vs 15.4% as of September 30th, with revenues coming in at 9.4% vs 9.3%. Finally, it’s worth noting that the chance of a recession in the next 12 months, as calculated from the yield curve, according to the Federal Reserve Bank of Cleveland, is presently (August 2027) 11.35%. The peak was 68.76% in April 2024, and it was the only time since 1960 in which a recession did not materialise, given such a forecast. The current level is below economists’ current forecasts: a 15% chance of a recession in the next 12 months.  

Source: Blue Chip Economic Indicators and Blue Chip Financial Forecasts; Federal Reserve Bank of Atlanta

Source: Federal Reserve Bank of New York, New York Fed Staff Nowcast

Source: Federal Reserve Board, Federal Reserve Bank of Cleveland, Haver Analytics

Earnings, What’s Next?

The reporting season for 3Q26 is now starting in earnest. Here’s a list of companies reporting this week. Highlights include: J.P. Morgan Chase and Goldman Sachs (Tuesday, Before Open), and Bank of America and Morgan Stanley (Wednesday, Before Open).

Source: Earnings Whispers

Market Considerations

Source: Bloomberg Finance LP, Deutsche Bank Asset Allocation, ISABELNET.com

Source: Carson Investment Research, FactSet, ISABELNET.com

Source: Goldman Sachs, ISABELNET.com

Revenue growth estimates for 2026 are forecasted to grow by 12.5% (12.4% on September 30th), and earnings growth estimates for 2026 are predicted to grow by 32.7% (32.4% on September 30th), so the future looks bright. Introducing forecasts for 2027, which sound again very positive, with revenue to grow by 9.4% (9.3% on September 30th) and earnings to grow by 15.8% (15.4% on September 30th). Due to rising, persistent inflation, all central banks are in a tightening mode. Certainly, a positive development in the Middle East conflict could put a cap on how much they will raise. However, rising yields seem to be out of control, and the world’s central bankers need to send a strong message that they are still in the driving seat.

Three highlights this week. The first chart, from Deutsche Bank, highlights the the (irrational?) exuberance there is for this upcoming earnings session. Hot on the heels of the 1Q26 and 2Q26 double, which not many were expecting, consensus for the current quarter is the highest ever, with veteran investor Louis Navellier saying that growth can be as high as 33%. The second chart, from Carson Investment Research and its leading strategist Ryan Decker, points that, in a Presidential cycle, the best performance is achieved in the 12 months after the midterms, which at the moment look particularly grim for the President, as Democrats stand to win the House and are ahead on the race to the Senate. The third chart, from Goldman Sachs, brings a good omen: after a strong performance in the first half of October, the second half of October is usually in the black. This, compounded with Carson favourable forecast, should bring more confidence for a run up until the end of the year, after what was a very challenging September.

For equities, be careful not to fall into ‘Buffett’s trap’. He famously said that there were moments when Berkshire Hathaway’s stock was down more than 50%, and nothing was wrong with the company at the same time. Timing and risk management are key. I remain optimistic in the long term; I have faith in the new CEO, but to follow the Oracle means filling very, very big shoes. It appears, however, that the legendary Chairman is still providing his ideas, particularly when trading stocks: the $10 Bn position in Alphabet was his idea. The late Angelo Abbondio, a legendary Italian investor, used to say that you can rely on fundamental analysis and on technical analysis, but the most difficult thing was to decide when to prioritise the first and when the second. In general, no stock can outperform all the time; some volatility has to be expected. Those who performed better earlier may not perform so well later.

Due to the persistent stickiness of inflation, monetary policy is again taking centre stage. Obviously, we should not overlook geopolitical scenarios in Ukraine and the Middle East: this will dominate the news for a while. Any further escalation would be negative for oil and for the markets.  

I now recommend a long position in equities and a neutral position on bonds. I’m still suggesting putting together a portfolio that focuses on the safety of German Bunds, but unfortunately Germany is not without issues, as the recent political elections in Saxony show, even though the stock of its sovereign debt at around 60% is the lowest in G7 countries. At the moment, even though some European yields are appealing (my preference is to look for nominal yields around 4% in countries with an investment grade credit rating), I would refrain to make investments in the long term because I cannot yet see the end of the so far unstoppable rise in sovereign yields. 

There are four main headline risks to what is otherwise a constructive view for 2026: i) revenue/earnings/guidance not matching forecasts, particularly in technology; ii) any damage to the economy and trade done from Trumponomics, tariffs, increasing sovereign yields, and resurging inflation; iii) any negative geopolitical outcome (which could see an expansion of the current conflicts); and iv) valuations, which have returned to the 10-year average, but would not protect the market in case of a slowdown in earnings growth. 

Japan continues to lead major global markets with a great performance YTD. The Bank of Japan is in a very tricky position, like the Fed was not so long ago. It would need to raise rates to counter inflation, but the weak growth may prevent it to do so. That might turn in a further weakening of the JPY. Watch out the long bond yields, particularly the 30y and 40y, as they react to increased government spending. I am now positive on the country, although I would definitely hedge the JPY. While the BOJ raised rates to 1.25% in September, the highest level in 31 years, it is seen as behind the curve, which is why – barring interventions – the JPY is continuing to fall, especially vs the USD.  

Portfolios

Finally, I want to introduce four portfolios that Tom and I published on Wikifolio. Tom’s a multi-asset portfolio, whereas the one I manage (with substantial input from Tom) is a global income and growth with a heavy US tilt. The third one is on Italian Equities. The fourth and latest one is on Japanese Equities. Check them out!

https://www.wikifolio.com/en/int/w/wf00inf8ig

Tom’s Multi-Asset Portfolio is up 35.7% in 2 1/2 years, with a Sharpe Ratio of 1.2

https://www.wikifolio.com/en/int/w/wf000ipggi

Our Global Income and Growth Portfolio is up 50.5% in 2 1/2 years, with a Sharpe Ratio of 0.9. Obviously, the devaluation of the USD had a big impact as all stocks are priced in EUR

https://www.wikifolio.com/en/int/w/wf00ipiteq

My Italian Equities Portfolio is up 77.3% in 2 years+ and has outperformed the FTSE MIB Index by 2450+ bp in this timeframe, with a Sharpe Ratio of 1.4

https://www.wikifolio.com/en/int/w/wf00ipjpeq 

My Japanese Equities Portfolio is up 12.7% in about 12 months. Obviously, the devaluation of the JPY had a big impact as all stocks are priced in EUR.

Consulting

Finally, I have officially become an Italian Independent Financial Consultant (Consulente Finanziario Autonomo), registered with the Italian OCF since 19 March 2024 (protocol 2425). If you are interested in my financial advice or simply for more information, please contact me at gvintani@gmail.com

Consulting accounts usually start from EUR 100,000. Please note that you should be based in Italy to avail yourself of this service. If you are interested, please feel free to drop me an email. I am happy to send you my presentation and track record upon request.

Happy trading, and see you on Monday or Tuesday next week!

InflectionPoint

Disclaimer

All views expressed on this site are my own and do not represent the opinions of any entity with which I have been, am now, or will be affiliated. I assume no responsibility for any errors or omissions in the content of this site, and there is no guarantee for completeness or accuracy. The content is food for thought, and it is not meant to be a solicitation to trade or invest. Readers should perform their own investment analysis and research and/or seek the advice of a licensed professional with direct knowledge of the reader’s specific risk profile characteristics.