Federated Hermes: Weekly Markets Wrap Up 15 October 2026
In this week's markets wrap-up, our investment experts discuss why the US midterm elections are unlikely to derail markets, where they are finding value in UK equities and what this week's third quarter earnings mean for US banks.
Steve Chiavarone, CIO for Global Equities at Federated Hermes
US Midterms: Limited Market Risk
No midterm election has ever ended the world, and this one will not either. We would argue it is among the least consequential elections in a long time. Only two outcomes would change policy in a meaningful way: a Republican sweep with much wider margins, or a Democratic wave large enough to produce filibuster-proof and veto-proof majorities. Both are unlikely.
The likely result is divided government, where the main output is higher spending in exchange for funding and debt-ceiling extensions. Markets have lived with that before. Historically the 12 months after midterm elections have been strong for equities, with markets gaining an average of 8.5% over the following 12 months and posting positive returns after each of the six midterms since 2000. The 2026 cycle has given us no reason to expect otherwise.
Louise Dudley, Portfolio Manager for Global Equities at Federated Hermes
Finding Value in UK Equities
As investors await the implications of the upcoming UK budget, the international nature of the UK equity market remains an important consideration. Many UK-listed companies derive a significant proportion of their earnings internationally. As a result, the investment case is often driven more by global revenue exposure than by the domestic economic outlook.
In the UK we view the opportunity set as primarily stock-specific rather than sector-driven. We favour companies which exhibit a broad range of attractive characteristics relative to peers including high-quality businesses with solid standards of governance. This also includes management teams that are focussed on the long term and shareholder value. In the UK this is integrated effectively with remuneration structures well-aligned to the delivery of long-term metrics.
Across many UK companies we continue to see share support from increased shareholder returns, particularly through buybacks, alongside strong balance sheets, and healthy cash generation. We are attracted to companies that are taking market share through product innovation, operational excellence and disciplined execution. Additionally, management guidance can be conservative, creating scope for positive earnings surprises. UK companies with earnings resilience and strong customer relationships are particularly valuable in a more uncertain economic environment.
Filippo Alloatti, Head of Financials for Credit at Federated Hermes
US Banks: Strong Fundamentals & Mixed Bag
The fundamentals of US money centre banks remain very strong, but third quarter earnings this week were an operationally mixed bag. After a strong first half of the year, driven by loan growth and trading revenues, it was always going to be a challenge for US banks to keep up that momentum. At the large lenders, net interest income held up and deposit balances were stable, albeit at a higher cost.
Despite worries over higher gas prices, inflation and rates, asset quality has so far not deviated from its positive trend, JP Morgan even cut the allowance to retail loans by around 90%. That said, consumer sentiment has turned tepid, as last week’s soft University of Michigan reading showed.
Equity capital markets were uneven, with lower IPOs and block trading. But a 5 year high in backlog at Goldman Sachs investment banking division speaks for a selective deal environment into year end.
I will be watching balance sheet expansion and wholesale issuance, which has already started with JPMorgan's $7bn deal this week. I expect sizeable issuance to continue, with banks printing at decent concessions despite strong results, simply because of the volume. Most managements have reiterated their full year guidance with limited read-through to 2027, and capital markets activity is likely to stay range bound until the US mid-terms.