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Perspective: Morning Commentary for October 19

Mike Castle
Mike Castle

Market Intelligence - Fertilizer Analyst

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October 19 – Stock futures are pointing to a mixed open to start the week, with signs of a rotation of money flow back into tech after last week’s ugly selloff, as the Nasdaq shows the strongest open while the Dow Jones looks to start the day in the red, a reverse in course from last week’s trade. The VIX has fallen notably from Friday’s surge to a three-month high above 22, now hovering near 18.6 at the time of writing. The dollar is just above unchanged to start the morning, sitting near 101.83 after falling from the 18-month high put in near 103 last Wednesday. Treasury yields are looking to start the week modestly higher, with 2-year yields just above 4.75%, 10-year yields above 5.10%, and 30-year yields at 5.443%. Crude oil is taking back some of Friday’s sharp gains that pushed nearby WTI to a one-month high and nearby Brent to a five-month high, as both are down roughly 1.5% on the day to trade near $97.60 and $107.90, respectively. Elsewhere in the commodity sector, the ags are quietly mixed to start the week.

Diplomatic rhetoric continues to suggest opportunities for de-escalation, but actual military activity over the weekend moved in the opposite direction in both the Middle East and Russia/Ukraine conflicts. In the Middle East, Iran continues to ramp-up strikes on vessels in and near the Strait of Hormuz, leading to a decline in flows from the region that had been seeing major improvement to reach near pre-war levels. Elsewhere in the region, escalations between Saudi Arabia and the Iran-backed Houthis of Yemen continued into the weekend, with the two sides exchanging strikes and fighting on the ground still raging, with the diplomatic momentum continuing to shift heavier toward the Saudis as Egypt now enters the fold, the latest nation in the region to join the effort. Last week’s supposed energy ceasefire between Russia and Ukraine proved fruitless, with Ukraine carrying out massive drone strikes on Russian energy targets over the weekend, including oil facilities around St. Petersburg, while Russia continued striking Ukrainian energy infrastructure in turn. The U.S. continues to lean more heavily into favoring Russia territory after Trump’s Friday executive order waiving sanctions for 60 days after just signing this legislation himself last month, but it is worth noting that the U.S. has reportedly resumed intelligence sharing with Ukraine over the weekend. Regardless of the pressure, the market doesn’t appear convinced that this shift in loyalty will actually result in a material improvement to commodity flow, as the risk of ultimately extending the conflict weighs.

Big tech earnings this week will give the market a fresh look at the health of the ongoing AI buildout after an ugly selloff across the tech sector last week. SpaceX and Netflix are due to report tomorrow, followed by a fuller slate Wednesday with Meta, Tesla, Texas Instruments, Lam Research, and IBM all on tap, followed by Western Digital on Thursday. This may add to volatility this week as investors have become increasingly sensitive to whether lofty AI spending is generating actual returns for these companies, with any indication of accelerating spending without corresponding revenue growth typically leading to pressure on the entire AI complex. The tech heavy Nasdaq shed over 5% last week to close at a one-month low, while the primary benchmark for the chip sector, the Philadelphia Semiconductor Index (SOX), fell nearly 11.5% on the week. Money is clearly trying to stay in the broader equities sector, however, with the Dow Jones, for example, finishing last week in the green. While this week’s earnings slate will be important to watch, there will be even more to parse through next week, with Microsoft and Google parent Alphabet on deck next Wednesday (10/28), followed by Amazon and Intel next Thursday (10/29), then Apple and AMD the following week. Overall, I’d look for intense scrutiny on AI spending and revenue signals to be a key theme in the weeks ahead as traders attempt to sort out the winners and losers of the ongoing capital-intensive AI boom.

The U.S. budget deficit for fiscal year 2026 reached $1.992T per the U.S. Treasury’s Friday release, up 12.3% year-over-year to represent the third largest annual deficit in history, trailing only the pandemic recovery era of fiscal years 2020 and 2021. Total government spending rose 5.5% year-over-year to a fresh all-time high of $7.396T, surpassing the record spending of $6.883T in fiscal year 2025 which narrowly took the crown from fiscal year 2021’s $6.822T. That spending growth outpaced the 3.2% year-over-year uptick in receipts, however, leading to the spike in the deficit. That pushes the national budget deficit to reach nearly 6.2% of GDP, up from 5.8% in the year prior and also the worst since fiscal year 2021, keeping concern regarding the sustainability of this path in place.

This is also the first time in history that the annual interest expense on the national debt surpassed $1T, rising $81B (~8%) from the year prior, as surging interest costs are becoming an increasingly significant burden on the federal budget. This creates a difficult cycle in which growing debt-servicing costs contribute to larger deficits, requiring additional Treasury issuance that could put further upward pressure on borrowing costs, particularly at the longer end of the yield curve where we’ve already seen a notable surge to multi-decade highs in 2026. Compounding these concerns is the massive capital investment required for the ongoing AI infrastructure buildout, with technology companies increasingly turning to debt markets to finance data centers, power generation, and other infrastructure projects. While much of this investment is being financed through corporate cash flows and private capital, the growing competition for investor capital comes at a time when the federal government is already facing enormous financing requirements. The concern moving forward is that the combination of persistent federal deficits and accelerating private-sector borrowing could place sustained upward pressure on longer-term interest rates, potentially crowding out investment elsewhere in the economy and raising financing costs for households, businesses, and the government alike.

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Perspective: Morning Commentary for October 19

October 19 – Stock futures are pointing to a mixed open to start the week, with signs of a rotation of money flow back into tech after last week’s ugly selloff, as the Nasdaq shows the strongest open while the Dow Jones looks to start the day in the red, a reverse in course from last week’s trade. The VIX has fallen notably from Friday’s surge to a three-month high above 22, now hovering near 18.6 at the time of writing. The dollar is just above unchanged to start the morning, sitting near 101.83 after falling from the 18-month high put in near 103 last Wednesday. Treasury yields are looking to start the week modestly higher, with 2-year yields just above 4.75%, 10-year yields above 5.10%, and 30-year yields at 5.443%. Crude oil is taking back some of Friday’s sharp gains that pushed nearby WTI to a one-month high and nearby Brent to a five-month high, as both are down roughly 1.5% on the day to trade near $97.60 and $107.90, respectively. Elsewhere in the commodity sector, the ags are quietly mixed to start the week.

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