Five for Friday – October 30, 2026
AI Humility, Bonds, Value, IPOs and Elections, and Volatility
1. AI
One of the time-tested lessons of investing is to approach markets with a certain level of humility, especially in periods of rapid change. Technological development and adoption tend to follow surprising paths…but AI has made the range of possible outcomes feel particularly wide, leaving markets vulnerable to sharp swings while expectations get continually repriced. Take software stocks, which rode a wave of AI-induced anxiety to a -30% bear market earlier this year before recovering to all-time highs and outpacing most corners of the market over the last six months. From “SaaSpocalypse” to AI beneficiaries in the blink of an eye. This lays bare not only the uncertainty in this rapidly changing landscape, but also that even the concept of “AI winners” is evolving in real time.
The same variety of lesson can apply to the broader market, too. Passive indexes are at historic levels of concentration in technology-related stocks and, by extension, are increasingly reliant on AI to deliver on enormous expectations. You don’t need to be bearish on AI (or loudly declare the market a bubble) to take a more active approach to diversification and risk management. In such a topsy-turvy world, extrapolating any trend too far out into the future is risky and outcomes that seem obvious today were rarely obvious before-hand. The biggest risks are typically those that no one sees coming…diversification merely acknowledges that fact.
2. Speaking of diversifying
It’s hard to find much excitement about fixed income after the last 5 years. In that time, bonds returned next to nothing (and had one of their worst-performing calendar years of all time in 2022) and failed to hedge against stock market weakness. In fact, bond bullishness is now in the fifth percentile over the last decade per our partners at Baird Strategas. That’s usually a good time to consider the alternative. Given that starting yield is a great predictor of future returns, today’s 5%+ yields on ultra-high-quality bonds look relatively attractive (especially vs. the dividend yields on major indexes). And while 2022 casts a shadow, investors shouldn’t let recency bias cloud their judgment of fixed income as a hedge for stocks: the last 20 times the S&P 500 fell 10%+, bonds averaged a 6% return over the following year and were positive 95% of time.
3. Back to AI
As for the AI bet embedded in today’s market, the big question is whether firms using AI will see tangible productivity benefits, and to what extent. Uptake seems strong, but will benefits be quantifiable enough to justify further spending to both investors and management. Per Apollo, “Data from 2Q earnings season shows that … 69% of companies now point to a live [AI] deployment… but only 2% report a metric tracked over time, and none break AI value out as its own KPI or P&L line.” As we near the 4-year anniversary of ChatGPT, the real test is now beginning: can AI deliver measurable economic value across non-tech industries?
4. Looking ahead
As we close the door on October, here are two short articles of mine that relate to what could become two of November’s main topics of discussion: Anthropic’s IPO and the midterm elections. My first story looks at IPO performance and recent trends; the second explores why markets respond less to elections than investors might assume.
5. On this day
in 1929, the S&P 500 concluded its most volatile 3-day stretch of the century, falling 12.9% on Oct. 28 and 10.2% on Oct. 29 before rallying 12.5% on Oct. 30. The volatility came just days after Yale economist Irving Fisher famously declared that stock prices had reached “what looks like a permanently high plateau” – and did not die down quickly. The S&P 500 fell nearly 90% from 1929 to 1932 and did not reach a new all-time high until 1954.
Disclosures
This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Market and economic statistics, unless otherwise cited, are from data provider FactSet.
This report does not provide recipients with information or advice that is sufficient on which to base an investment decision. This report does not take into account the specific investment objectives, financial situation, or need of any particular client and may not be suitable for all types of investors. Recipients should not consider the contents of this report as a single factor in making an investment decision. Additional fundamental and other analyses would be required to make an investment decision about any individual security identified in this report.
For investment advice specific to your situation, or for additional information, please contact your Baird Financial Advisor and/or your tax or legal advisor.
Past performance is not indicative of future results and diversification does not ensure a profit or protect against loss. All investments carry some level of risk, including loss of principal. An investment cannot be made directly in an index.
Copyright 2026 Robert W. Baird & Co. Incorporated.
Other Disclosures
UK disclosure requirements for the purpose of distributing this research into the UK and other countries for which Robert W. Baird Limited holds an ISD passport.
This report is for distribution into the United Kingdom only to persons who fall within Article 19 or Article 49(2) of the Financial Services and Markets Act 2000 (financial promotion) order 2001 being persons who are investment professionals and may not be distributed to private clients. Issued in the United Kingdom by Robert W. Baird Limited, which has an office at Finsbury Circus House, 15 Finsbury Circus, London EC2M 7EB, and is a company authorized and regulated by the Financial Conduct Authority. For the purposes of the Financial Conduct Authority requirements, this investment research report is classified as objective.
Robert W. Baird Limited ("RWBL") is exempt from the requirement to hold an Australian financial services license. RWBL is regulated by the Financial Conduct Authority ("FCA") under UK laws and those laws may differ from Australian laws. This document has been prepared in accordance with FCA requirements and not Australian laws.
