Episode summary
Q3 2026 Market Recap: Energy Up, Utilities Crushed, and Software Flipped | The Weekly Wrap
The Real Eisman Playbook
· · 23 min · Hosts: Steve Eisman
Summary
Steve Eisman framed the third quarter of 2026 as a market increasingly driven by two macro variables: oil and the 10-year yield. He said higher rates, war-related oil spikes, and a wave of AI-related debt issuance pushed the 10-year yield from 4.5% to 5.25%, while also worsening stress in mortgages and distressed leveraged loans. He warned that higher rates are beginning to bite the housing market, corporate borrowing, and consumers, and that the economy may be getting closer to a breaking point.
The quarter’s stock leadership was highly uneven. Energy was the best-performing sector, up 16.5% for the quarter and 37% year to date, while utilities were the worst, down 13% for the quarter. Eisman said the S&P 500 is no longer meaningfully diversified because AI now touches more than 65% of the index when direct and indirect exposures are counted. That concentration, he argued, made the market feel like one giant AI trade rather than a balanced portfolio.
He also described a narrative reversal in software and financials. After an earlier “SAS apocalypse” scare, software names such as Palantir, Workday, Cognizant, Accenture, and Salesforce rallied hard, while some hardware winners faded. Eisman said bank stocks remain too risky for him as recession fears rise, and he also explained why he covered FICO and sold Glass House Brands after a sharp decline and management changes.
Key takeaways
- Eisman said the 10-year yield’s rise from 4.5% to 5.25% was driven by AI debt issuance, higher oil prices, and the Fed’s September rate hike.
- He argued the S&P 500 is no longer a diversifying vehicle because AI exposure now runs through more than 65% of the index.
- Energy led the quarter, with the sector up 16.5%, while utilities were the weakest, down 13% as higher rates hurt dividend appeal and utility valuations.
- He said the software trade flipped from the “SAS apocalypse” narrative to a sharp rebound in names like Palantir, Workday, Accenture, and Salesforce.
- Eisman remained cautious on bank stocks, saying recession fears and rising credit-cost pressure make the group too early to buy.
Notable quotes
“The combination of AI debt issuance and the Fed raising rates cause the tenure to move to its current high levels”
“Energy best performing sector up 16.5% for the quarter and up 37% for the year”
“Now, during the first six months, investors flocked to hardware tech companies that were experiencing shortages because of the boom in AI capex spending”
“The better part of Valor is to cover and so I did”
How the episode opens
There are some signs of economic stress emerging. Mortgage rates have reached 7 and 12%. Deeply distressed leveraged loans have reached the highest levels since the pandemic.
And I want to take the time to do a deep dive into what sectors and stocks did well, which did not, and why. So, we have to admit that investing in the S&P no longer provides diversification. It's mostly all one trade AI.
And to be perfectly frank, that makes me nervous. I want to review a bunch of questions I've received about what to do to diversify away from AI. Answering this question is more difficult than it first appears.
Let me lay out the nature of the problem. Now, let's dig deeper. Hi, this is Steve Eisman and this is another edition of the weekly rap.
This is for the week ending Friday, October 9, but recorded Thursday night, October 8th. I just want to repeat an announcement about a change we made this week. Monday and Friday episodes are available to premium Substack subscribers earlier.
The Monday interviews are released for those subscribers at 12:00 p.m. Eastern Standard Time every Sunday, and the Friday rap is released at 12:00 p.m. Eastern Standard Time every Friday.
The Monday and Friday episodes will be available on YouTube and all audio channels at the usual times, Monday at noon and Friday at 4:15 p.m. On this week's wrap, we will discuss the war in Iran interest rates and oil prices, a snapshot of the economy today with key weaknesses perhaps emerging, an analysis in depth of the third quarter, why I covered FICO and sold my long position in Glass House Brands, and one mailbag. There wasn't any significant war news this week, but what is clear is that the only two variables for the market that matter on a day-to-day basis are movements in oil prices and the 10-year yield.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- q3 market recap
- oil prices
- interest rates
- ai concentration in sp500
- fico and credit scoring
Companies and tickers mentioned
- FICO
- FICO
- Glass House Brands
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from The Real Eisman Playbook
-
The AI Debate is No Longer Boom vs Bust: Why It’s Time to Go Back to Stock Picking | The Weekly Wrap -
The Midterms Have Changed the AI Narrative: S&P Down 4.4%, Nasdaq Down 5.5% | The Weekly Wrap -
Why Young Americans Feel Locked Out with the Lemonade Stand Podcast | The Real Eisman Playbook Ep 82 -
Anthropic’s Growth is Slowing: Is AI Capex Next? | The Weekly Wrap -
Inflation, The Deficit & Why the Dollar Stays King with Benn Steil | The Real Eisman Playbook Ep 81 -
AI Narrative Switched, Debt Yields Spike | The Weekly Wrap
The Real Eisman Playbook, this episode and its artwork belong to Steve Eisman. Octagon is not affiliated with the show; this page is an independent summary.
