AI Capex spending concerns and renewed Middle East tensions overshadowed resilient U.S. business activity and a strong Q3 earnings season. Despite late-week selling, the Dow Jones Industrial Average managed to log a winning week while U.S. Treasuries held firm as investors sought out bonds for their safe haven status. If earnings growth continues to broaden and economic activity remains healthy, the Dow is poised to close out October on a strong note.
Key Highlights:
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U.S. business activity in October held at a five year high while selling prices rose at the sharpest rate since August 2022. The Flash US Composite PMI Output Index slipped to 57.6 from 58.4 in September. Numbers above 50 indicate expansion while numbers below signal contraction. An improvement in new orders and strong hiring to meet AI buildout demand helped offset higher input costs.
- Homebuilder sentiment fell to a 14-year low in September, sending homebuilding lower on the month. Housing starts fell 4.56% to an annualized 859K. Building permits, which are a measure of future construction, fell 4% month-to-month. Little relief is expected on the homefront as high interest rates keep costs elevated for homebuilders and buyers alike.
Dow Outperforms as Investors Reassess AI Returns and Geopolitical Risk
The trading week started off promising, with AI bulls ready to buy the recent tech dip and oil prices retreating from the prior week’s peak. Renewed enthusiasm for the AI trade helped spur a three-day winning streak for the S&P 500. However, the rally fizzled by Thursday under renewed AI spending concerns and geopolitical tensions. Big tech giant Meta rattled markets during the trading session despite posting better than expected earnings and robust forward guidance. The company announced it would be raising the lower end of its annual AI spending forecast by $5 billion to a range of $135 billion to $145 billion alongside plans to sell new stock to help pay for it. That did not sit well with investors as markets have decisively soured on growing AI capex plans and the growing mountain of debt to fuel that spending. Neocloud provider CoreWeave, a poster child for capex anxiety and credit stress, remained under pressure this week as investors questioned what remaining financing options are available to the company. Its shares have dropped about 60% from their May peak, while its bond yields have spiked into double-digit territory on cash flow concerns. Nvidia, the market’s AI darling – and coincidentally CoreWeave’s top institutional shareholder with roughly a 9% stake – attempted to soothe markets stating that demand for AI cloud infrastructure is “off the charts”. However, that did little to lift sentiment, and both stocks closed notably lower on Thursday. Friday’s trading served up more geopolitical tensions for the markets. Reports point to the possibility of targeted military strikes on Iranian infrastructure following the upcoming U.S. midterm elections. In response, Iran has indicated it is fully prepared for “asymmetric warfare” after having spent the summer strengthening its capabilities. Needless to say, this sent energy prices surging with WTI crude trading above $103+ a barrel on Friday. A ramping up of violence in the Middle East appears imminent and will likely drive prices and interest rates even higher.
Heading into Friday, both the Dow Jones Industrial Average and the fixed income market appeared that they would have a particularly strong week. However, Friday’s war of words between Iran and the U.S. clipped the economically sensitive Dow’s total. Still, the index managed to finish in the black and is tracking for a 2.50%+ monthly gain. Strong Q3 earnings reports from energy, materials, and banks have helped support the index while its lower tech exposure relative to the S&P 500 and Nasdaq Composite has insulated the index from the AI capex turmoil. This week was supposed to be a positive reset for tech stocks. Despite robust earnings for the sector, with earnings higher 56% year-over-year, investors continue to question AI’s longer term return on capital. Those concerns have made the Dow’s constituents – with their solid balance sheets – and U.S. Treasuries more attractive in recent weeks as investors seek to offload their tech concentration.
The Week Ahead
It will be a busy end to October trading as investors will be tuning in for the Fed’s FOMC meeting. On the economic calendar we’ll have the September PCE Index and durable goods orders.
Year-End Financial Planning: Opportunities to Consider
We are in the final quarter of the year, and many of us naturally begin reflecting on what we’ve accomplished and what we still want to tackle financially prior to turning the page to 2027. Before the hustle and bustle of the holiday season, now is a good time to make meaningful adjustments that can strengthen your financial footing, reduce taxes, and ensure your long-term plans stay on track. Below are year-end planning opportunities, complete with this year’s contribution limits, deadlines, and several important considerations and reminders. These suggestions are by no means one-size-fits-all, so please feel free to reach out to us for individualized planning guidance.
1. Revisit Your Retirement Contributions
Check whether you’ve taken full advantage of your workplace retirement account. For 2026, employees can save up to $24,500 (depending on their plan), plus an $8,000 catch-up if age 50 or older. Individuals aged 60–63 may qualify for an increased “super” catch-up. Business owners may consider SEP IRAs or Solo 401(k)s, which allow contributions up to $72,000 in 2026. Increasing your contribution for the final pay periods can make a big difference in what is owed to Uncle Sam.
2. Don’t Miss Your Required Minimum Distribution (RMD)
If you are 73 or older, you may need to take an RMD before December 31. Missing the distribution can lead to significant penalties you’ll want to avoid. Given that RMDs span numerous types of accounts and the total RMD can be take pro-rata per account or from just a single account, it is important to touch base with your advisor to avoid under or over distributing from your account(s) held with our firm.
3. Consider a Qualified Charitable Distribution (QCD)
If you do not need your RMD for living expenses, you might consider a QCD. IRA owners age 70½+ can give up to $111,000 directly to charity in 2026, satisfying some or all of their RMD without increasing taxable income.
4. Review Capital Gains and Losses
Before year-end, scan your taxable accounts for opportunities to offset gains with losses. Probity Advisors does this for accounts that we actively manage on behalf of our clients. If you realized gains from real estate, business interests, or investments outside Probity-managed accounts, please let us know so we can coordinate tax-loss strategies.
5. Use Your Annual Gift Tax Exclusion
For 2026, an individual may give up to $19,000 per recipient without using their lifetime exemption. In addition to this, larger amounts may be transferred by paying tuition or medical expenses directly to the provider on behalf of a recipient, which is also tax-free and does not count against the exclusion.
6. Complete Charitable Giving
Charitable gifts must be completed by December 31 to be deductible for the 2026 tax year. Donating appreciated stock can help avoid capital gains taxes while still providing a deduction. Some families may also benefit from “bunching” multiple years’ gifts into 2026 to exceed the standard deduction.
7. Maximize Your Health Savings Account (HSA)
HSA limits for 2026 allow contributions of $4,400 for individuals and $8,750 for families, plus a $1,000 catch-up if age 55+. HSAs offer tax-free contributions, growth, and withdrawals for medical expenses.
8. Spend Flexible Spending Account (FSA) Balances
Most FSAs require unused funds to be spent by year-end. Some plans offer rollover allowances or grace periods, so check your employer’s rules and schedule any eligible expenses now but know that many plans are structured as “use it or lose it.”
9. Make 529 College Savings Contributions
The 2026 exclusion allows contributions of up to $19,000 per beneficiary in a single 529 plan without the funds counting against the lifetime gift tax exemption amount, and many states provide tax incentives for contributions made by December 31.
10. Review Your Estate Planning Documents
Wills, trusts, powers of attorney, and healthcare directives should be reviewed every few years. Life changes, such as births, deaths, and relocations, may require updates to ensure your intentions are properly reflected.
11. Confirm Beneficiary Designations
Retirement accounts and life insurance benefits pass directly to named beneficiaries. Review both primary and contingent beneficiaries to ensure they match your current wishes.
12. Rebuild or Strengthen Your Emergency Fund
An emergency fund should ideally have 6–9 months of essential expenses in an accessible account. Year-end bonuses or surplus cash flow can help rebuild reserves and now is a good time to make any needed adjustments.
13. Reevaluate Your Investment Strategy
Year-end brings a fresh opportunity to check in on your investment goals, risk tolerance, and time horizon. Market dynamics and tax laws continue to shift so taking stock of where you are with respect to your retirement goals can help guide the adjustments you should make today to support better outcomes tomorrow.
14. Organize Key Documents and Digital Information
Ensure loved ones know where to find important documents, estate plans, account information, passwords, digital assets, and property records. A secure digital vault or organized system can save significant headaches later.
15. Meet with Your Advisor
A year-end review helps ensure all parts of your financial plan—investments, taxes, retirement, and estate planning— are effectively working together, and we encourage you to call us at (214) 891-8131 with any questions you might have.