The three months to the end of October were shaped by two forces pulling in opposite directions. Inflation, pushed higher by an oil shock stemming from the US-Iran conflict, forced the Reserve Bank of Australia back into raising interest rates. At the same time, the Australian economy slowed, unemployment edged up and home values fell for a seventh consecutive month. Late in the period, a sharp sell-off in technology shares added a new source of uncertainty, centred on whether the enormous sums being spent on artificial intelligence will earn an adequate return.
Interest rates
The Reserve Bank held the cash rate at 4.35% in August, then lifted it to 4.60% on 29 September. On 3 November, as this update was being finalised, it raised rates again to 4.85%, the highest level since late 2008 and the fifth increase this year. The decision was not unanimous, with three of the nine Board members preferring to hold. The Bank now expects inflation to stay above 3% for the year ahead and does not expect it to return to the top of its 2-3% target band until late 2027, and it has left the door open to further increases.
Overseas, the US Federal Reserve raised its benchmark rate in September for the first time in three years, to a range of 3.75% to 4.00%, before holding steady in late October.
Inflation and the oil shock
Annual inflation rose to 4.3% in September, up from 4.0% in August, according to the Australian Bureau of Statistics. Housing costs, including new homes and electricity, were the largest contributor, followed by transport, where fuel prices rose sharply. The trimmed mean, the measure the Reserve Bank watches most closely because it strips out the most volatile price movements, rose to 3.6%.
Much of this pressure originates offshore. Disruption to shipping through the Strait of Hormuz kept Brent crude above US$100 a barrel for much of September and early October. The Reserve Bank has noted that higher fuel costs are now flowing through to the prices of other goods and services, which is why it has been unwilling to treat the oil shock as temporary.
Economy, jobs and property
The broader economy is losing momentum. Growth was 0.4% in the June quarter and 2.1% over the year, with households spending cautiously and saving slightly more of their income. The unemployment rate rose from 4.5% in July to 4.7% in September.
The housing market has weakened further. Cotality's index shows national home values fell 1.2% in October, the seventh consecutive monthly decline, leaving them 6.7% below their March peak. Melbourne values fell 0.8% in the month and are 7.6% lower than a year ago. For households that own their home outright, a fall in paper value changes little day to day, but it can affect the timing of any plan to downsize or to help children into the market.
Share markets and the October tech sell-off
The S&P/ASX 200 rose 1.1% in August on a solid company reporting season, fell 3.2% in September as rising oil prices and bond yields unsettled investors, and recovered about 1.4% in October. Over the three months the index finished modestly lower, and in October investors moved money toward defensive sectors such as utilities and healthcare. The median growth super fund, as measured by Chant West, fell 0.4% in September and was up just 0.8% for the financial year to that point.
The larger story in October came from the United States. The Nasdaq, home to most of the world's largest technology companies, fell about 5.3% for the month, its worst result since March 2025. The falls were concentrated in companies tied to the build-out of artificial intelligence. Alphabet, the owner of Google, fell around 10% after its quarterly earnings missed expectations and it signalled a significant increase in spending next year. Amazon fell more than 7% after reporting a quarter in which its capital spending reached US$77 billion and its free cash flow was negative. Intel lost close to 30% of its value in a single session after issuing a weak revenue forecast. Australian technology shares have not been spared either; by mid-September, WiseTech Global and Xero had each lost more than 40% of their value since the start of the year.
The Anthropic listing and the AI spending question
Investor nervousness about artificial intelligence now has a focal point. Anthropic, the developer of the Claude AI models, lodged its prospectus on 26 October for a listing on the Nasdaq, with trading expected later in November. The offering could rival the largest on record. Its revenue has grown extraordinarily quickly, to about US$17 billion in the September quarter, but that growth slowed sharply from the previous quarter and the company remains loss-making. It has also disclosed close to US$900 billion in long-term commitments for computing infrastructure.
Following the October sell-off, the Wall Street Journal reported that institutional investors were pushing for a valuation of around US$1.5 to US$1.6 trillion, below the figure of close to US$2 trillion discussed earlier. Their concerns extend well beyond one company. They include how much of their portfolios are already exposed to AI, growing political opposition to new data centres, and uncertainty about when the large technology companies will turn their AI spending into profit.
This matters beyond Wall Street. The AI infrastructure boom has become one of the main supports for global share markets, and the Reserve Bank has noted that it is also lifting growth among Australia's trading partners and adding to the price of technology goods. A well-received listing would reassure markets that investors remain willing to fund the build-out. A poorly received one, or a postponement, could prompt a broader reassessment of AI-related valuations. Commentators remain divided on whether current spending represents a lasting shift or a bubble, and the answer will not be clear for some time.
What this means for your investments
For savers holding cash, higher interest rates are welcome, although the Reserve Bank's increases have been slow to reach many savings accounts, and after tax and 4.3% inflation the real return on cash remains modest.
For anyone within five to ten years of retirement, the period has been a reminder that markets can shift quickly, and that the order in which returns arrive matters as much as their average. A portfolio spread across asset classes, sectors and regions, rather than concentrated in whatever has performed best recently, remains the most reliable way to manage these swings.
If you would like to review how your investments are positioned for higher rates and a less certain outlook for technology shares, please get in touch to discuss.
References
Reserve Bank of Australia, Statement by the Monetary Policy Board: Monetary Policy Decision, 3 November 2026.
ABC News, RBA lifts interest rates to highest level in 18 years to try to dampen inflation, 3 November 2026.
Board of Governors of the Federal Reserve System, Federal Reserve issues FOMC statement, 28 October 2026.
Australian Bureau of Statistics, CPI rose 4.3% in the year to September 2026, 28 October 2026.
Australian Bureau of Statistics, Australian economy grew 0.4% in the June quarter, 2 September 2026.
Australian Bureau of Statistics, Unemployment rate at 4.7% in September, 15 October 2026.
Cotality, Home Value Index, November 2026, 2 November 2026.
Oil & Gas Storage News, Oil price update October 2026, October 2026.
CommBank Newsroom, ASX slips but extends monthly winning streak in August, 31 August 2026.
The Bull, ASX 200 moves positive YTD, as September closes 3.1% lower, 30 September 2026.
The Bull, ASX 200 caps solid October with 8,900 hold, 30 October 2026.
The Motley Fool Australia, Superannuation funds fell in value in September, 19 October 2026.
Nation Path, Nasdaq suffers worst monthly decline since March 2025 as AI spending concerns hit US tech stocks, October 2026.
24/7 Wall St, Alphabet failed Wall Street's new AI test, 29 October 2026.
SiliconANGLE, Amazon's stock falls after it posts disappointing earnings and revenue miss, 29 October 2026.
Journal Arta, Intel stock plunges nearly 30% on weak outlook, 30 October 2026.
The Motley Fool Australia, WiseTech Global vs Xero: which fallen ASX tech share is the better buy today?, 15 September 2026.
XTB, Anthropic files prospectus ahead of IPO with ANT ticker on Nasdaq, 26 October 2026.
Stocktwits, Anthropic updates IPO filing as investors push for lower valuation, 2 November 2026.
investingLive (reporting The Wall Street Journal), Anthropic IPO investors push for lower $1.5 trillion valuation after tech selloff, November 2026.