US-Iran Peace Talk Optimism, ISM Beat, Generate Cautious Rebound Prior To Midterm Elections: Nov. 2, 2026

A 6% plunge in crude oil driven by Iran’s supreme leader giving the green light for his government to hold peace talks with Washington and the White House expressing a preference for a diplomatic solution rather than a military escalation in the region is generating a cautious Wall Street rebound on the eve of the midterm elections. Rates are also tumbling on a retreat in inflation projections, a result of lighter fuel charges as well as a surprising deceleration in the prices paid segment within October’s ISM manufacturing survey. Meanwhile, it wasn’t a slowdown in activity that lowered costs, as the headline beat featured a number just shy of the 50-month high in July, and strengthened evidence that the AI buildout is continuing uninterrupted. The favorable dynamics have stocks recovering from Friday’s selloff and potentially producing a gain to start November, historically the best month for equity returns. But the comeback feels hesitant, and some market watchers may even say it’s a dead cat bounce, as stocks are barely paring a quarter of the heavy Halloween scare losses. Still, the four major US benchmarks are advancing amidst all 11 principal sectors minus equity gaining. The yield curve is descending in bull-flattening motion led by duration, and the 10-year is now meaningfully below 5% and widening the path to a one and done from the Fed to mark the end of this hiking cycle in December. The loosening financial conditions are raising non-energy commodities, weakening the greenback, and quelling volatility hedging demand. However, cryptocurrencies aren’t benefiting, as the recent Binance heist continues to weigh on digit asset sentiment.

US Goods Production Strengthens to 53 Month High

US manufacturing in October strengthened at the second fastest pace in 53 months in October, as broad strength across categories pushed the monthly result well above expectations. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) accelerated to 55.5, surpassing the 54.6 median estimate and the 54.4 from September. Driving the better-than-anticipated activity were the production, new orders, backlogs and export segments, which posted scores of 59, 55.5, 54.6 and 51.2, comfortably above the expansion-contractions threshold of 50. The prices area could have been worse and offered a favorable deceleration from the prior period’s 77.9, although it remained at an elevated 75.2. Nonetheless, considering that fuel costs rose meaningfully month over month (m/m), slowing overall inflation in the goods producing sector is a positive development signaling the potential for a plunge in the coming months if geopolitical tensions cool.

Good Setup for Wall Street To Rally Post Midterms  

Underlying economic and equity fundamentals are now further supportive of a post midterm rally irrespective of the result. Stocks have gotten crushed from slowdown fears and Congressional worries that are overblown, as corporations are still poised to deliver double-digit earnings growth through 2028, while the democrats are likely to shift to the center of the aisle following the expected blue sweep, with Michigan Democratic Representative Haley Stevens’s endorsement of the GOP’s Mike Rogers presenting the most recent example of the upcoming moderation. Meanwhile, President Trump is tilting towards deal mode on the Middle East to avoid more rate hikes while improving affordability dynamics and market sentiment, which could plunge oil to a return to the 60s, similar to in early July, while bringing headline inflation back to a 2-handle in the spring. Such a backdrop of oversupplied crude paired with a hefty geopolitical premium is incredibly favorable in light of investors being fearful at this juncture while short sellers are active amidst an AI buildout that is progressing alongside consumer spending momentum and healthy hiring trends. The conditions, though, point to cyclical areas leading from here, as disinflation and lighter yields disproportionately benefit those groups relative to their tech counterparts. However, the landscape is conducive to a broad advance during this seasonally friendly time of year.

International Roundup

Manufacturing Expansion Continues in China

The growth of China’s manufacturing sector las month eased marginally from August’s expansion pace, but it continued to show considerably strengthen, according to the S&P Global RatingDog General Manufacturing PMI. The gauge fell 0.1 point to 52 but remained well above the contraction-expansion threshold of 50.

Tailwinds for the headline result included the following:

• Production expanded at its fastest pace in six months
• Increases in orders from both domestic and foreign customers accelerated
• Firms responded to capacity pressure by adding workers, but only at a marginal rate
• Input purchasing activity ascended to its high level in eight months
• Supplier delivery times shortened for the first time since February

Challenges during October included higher input prices, largely a result of fuel and raw materials becoming more costly. It was the sixteenth consecutive month of input inflation. Firms also reported increased competition which caused a drop in output charges. The competition and input inflation caused confidence to hit a nine-month low although overall sentiment remained positive.

China’s Central Bank Finalizes Benchmark Shift

The People’s Bank of China inserted $81.3 billion into its economy on Friday with a reverse repurchase agreement carrying a 1.25% interest rate. The move is intended to push short-term financing costs down. Up until now, the central bank’s primary monetary policy tool has been its rates for one-year and five-year prime loans. It has maintained those benchmarks at 3% and 3.5%, respectively, for 17 months.

Demand for AI Causes South Korea Exports to Surge

South Korea’s exports were up 93.7% year over year last month with the global race to dominate the artificial intelligence sector pushing up demand for the country’s technology products. In a related matter, the country announced today that it isn’t taken in leaders in high manufacturing for granted—it plans to double its investments in the sector next year to $16 billion, largely to give its military a competitive edge. The export growth, which was juiced by a 256% spike in computer chips sent to foreign soil, exceeded the economist consensus expectation for a 93.2% advance following the 83.7% September gain.

The value of purchases from foreign providers also climbed. The 36% y/y jump was slower than the economist estimate of 39.9%, but it accelerated from September’s 26% ascent.

Despite the breakneck advance in exports, the country’s trade surplus fell from $49.9 billion in September to $42.5 billion last month, but it blew past the economist consensus estimate of $37.2 billion.

But Manufacturing Expansion Slows

The S&P Global South Korea Manufacturing Purchasing Managers’ Index (PMI) fell from 53.9 in September to 51.3 in October, an eight-month low and pointing to slowing overall growth among goods producers. It is the weakest headline since February.  On a positive note, production increased for the tenth consecutive month, but the growth nevertheless decelerated from September. High prices, materials shortages and softer expansions in new orders weighed on output.