AI Spending Test looms over US Midterms
October ended with a familiar tension: growth is holding up, but inflation and borrowing costs are not coming down. In the week to 30 October 2026, strong US results were no longer enough to reassure investors worried about the scale of AI spending. The Nasdaq Composite lost 2% on the week and more than 5% over the month, while the Dow Jones Industrial Average gained just under 2% for October. Investors are drawing a sharper line between revenue growth and the cash a business actually generates.
Strong growth, stubborn inflation
The US economy grew at an annualised 3.4% in the third quarter, but inflation on the Federal Reserve’s preferred measure rose to 3.6% in September. The Federal Reserve held rates, with two policymakers voting for an increase, and markets now expect a rise in December. With Brent crude above $110 a barrel and the European Central Bank signalling further tightening, investors are adjusting to borrowing costs staying higher for longer.
From headline growth to free cash flow
The largest cloud and platform companies are spending hundreds of billions on chips, data centres and power. This results season, the market judged each of them on whether that spending is turning into cash. Microsoft passed the test, with Azure revenue up 48% and healthy free cash flow. Alphabet fell almost 13% after a second consecutive quarter of negative free cash flow, and Intel fell almost 30% on Friday after a weak outlook. According to Reuters data, five of the largest US technology companies spent more on capital investment than their operations generated in the first nine months of 2026.
Rotation, not retreat
Weakness was not universal. Healthcare, energy and defensive consumer businesses attracted buying, and Europe’s STOXX 600 gained just under 2%, helped by its lighter technology weighting. In the UK, the Budget was received calmly and the 10-year gilt yield eased to 5.3%, although fiscal headroom narrowed to £15bn. Fiscal and political risk was more visible elsewhere. The French 10-year yield rose above 5% for the first time since 2002, and Brazil’s main index fell 18% after President Lula’s re-election. Gold fell around 3% and silver nearly 9%, as higher rates raised the cost of holding assets that produce no income.
What this means for portfolio construction
A market that rewards cash generation and punishes spending without returns is a more selective market. Portfolios concentrated in a few large technology companies now carry a specific risk on top of general market risk: whether the AI investment pays off, company by company.
TEAM’s UCITS funds, across the Multi Asset Growth, Balanced and Conservative strategies, spread exposure across asset classes, regions and sectors, so that the client’s outcome does not depend on a handful of companies winning the AI spending race.
Structured Notes allow advisers to link a defined payoff to the performance of an index or basket, with features such as capital protection or enhanced income set at the outset. That gives clients a known framework when markets reward and punish individual companies as sharply as they did this week. Because a Structured Note is an obligation of its issuer, advisers should also weigh issuer credit quality and consider spreading exposure across issuers where appropriate.
The conversation worth having now
The week ahead brings the US midterm elections on Tuesday 3 November, the Bank of England’s next rate decision and the US employment report on Friday 6 November. Advisers may find it useful to look at how much of each client’s portfolio rests on AI spending paying off, whether bond holdings still provide the protection clients expect while inflation stays high, and whether exposure to fiscally stretched markets is a deliberate choice.
At NEBA Financial Solutions, we work with advisers to turn that review into practical decisions, whether through the breadth of TEAM’s fund range or the defined structure of a Structured Note.
Source: TEAM Asset Management Weekly Commentary – 30th October 2026
