Global share markets faced a more challenging environment in October, with a late-month sell-off in US technology companies weighing on investor sentiment. Questions about whether significant investment in artificial intelligence infrastructure will translate into sustainable profits contributed to the uncertainty.
Rising oil prices also renewed inflation concerns, while central banks maintained their focus on bringing inflation under control. In contrast, bond markets performed strongly as government bond yields declined in Australia and the United States.
Despite the weaker global backdrop, Australian shares finished the month higher, supported by the financial and healthcare sectors.
Australian shares rose during October, despite stronger-than-expected September inflation data setting the scene for the Reserve Bank of Australia’s interest rate increase in early November.
Financial and healthcare companies led the gains, with the major banks and defensive sectors performing particularly well. Materials and technology companies weakened, while smaller companies trailed their larger counterparts.
Australian small-cap shares declined sharply during the month, highlighting the concentrated nature of the broader market’s gains.
International share markets experienced a more difficult month.
In the United States, sharp declines among technology and communication services companies weighed on the broader market, although many other sectors recorded gains. Europe also declined amid higher energy costs and concerns about interest rates, while technology-related weakness affected the Japanese market.
Emerging markets fell more sharply, particularly China, Taiwan and South Korea, as investors reassessed the level of spending needed to support future artificial intelligence growth.
For Australian investors, a stronger Australian dollar further reduced returns from unhedged international investments.
Australian and global fixed interest markets were among the strongest-performing asset classes during October.
In Australia, rising unemployment and falling house prices pointed to a slowing economy. This strengthened expectations that interest rates could eventually move lower, supporting bond prices.
Global fixed interest performed particularly well as US government bond yields fell further than Australian yields. Corporate bonds were weaker by comparison, especially lower-quality high-yield bonds, as investors sought greater compensation for taking additional credit risk.
| As at 30 September 2026 | 1 Month (%) | 12 Months (%) |
|---|---|---|
| Australian Shares | 1.4 | 3.7 |
| Australian small-cap shares | -6.4 | -14.4 |
| International shares (hedged) | -1.4 | 12.7 |
| International shares | -2.7 | 4.5 |
| International small-cap shares | -0.6 | 8.2 |
| Australian fixed interest | 1.5 | 0.4 |
| International fixed interest (hedged) | 1.8 | 0.4 |
| Cash - bank bills | 0.4 | 4.1 |
Source: FactSet / Evidentia.
Investor attention is shifting from the broad potential of artificial intelligence to whether the significant amounts being invested in AI infrastructure will generate adequate returns.
Softer earnings from several large technology companies, higher borrowing costs and growing competition from China contributed to these concerns during October. Companies carrying higher levels of debt were placed under the greatest pressure.
This does not necessarily indicate a loss of confidence in artificial intelligence as a long-term investment theme. Instead, investors are becoming more selective and placing greater emphasis on earnings, balance-sheet strength and the likelihood of generating sustainable returns.
Inflation remains a key consideration for central banks.
The US Federal Reserve held interest rates steady but left open the possibility of another increase. The Bank of Canada raised rates for the first time since it began reducing them following the pandemic, adding to signs that inflationary pressures remain broad-based across major economies.
High-quality government bonds provided valuable stability in this environment, rising as share market volatility increased.
In Australia, persistent inflation prompted the Reserve Bank to increase the cash rate in early November.
However, a divided Reserve Bank Board and softer commentary about further increases suggest the tightening cycle may be approaching its conclusion. Falling house prices and a gradually slowing labour market are placing pressure on households, but may also help inflation moderate over time.
While markets are considering the possibility of interest rate reductions in the second half of 2027, the immediate risk remains the potential for further tightening if inflation remains too high.
October demonstrated how quickly investor sentiment can change, particularly when market expectations and company valuations are elevated.
While artificial intelligence remains an important long-term investment theme, investors are paying closer attention to profitability, debt levels and the sustainability of company earnings. At the same time, higher-quality bonds continue to provide income and diversification when share markets become more volatile.
Maintaining a diversified portfolio, focusing on quality investments and avoiding short-term reactions to market movements remain important parts of a disciplined investment strategy.
If you would like to discuss your investment strategy or portfolio, get in touch with your local Boyce office.
If you'd like to discuss your investment strategy or portfolio, get in touch with your local Boyce office.
