This Week in Markets: Credit, AI, and Bonds Explained

From resilient credit markets to profitable AI investments and income-driven bond returns, this week's commentary covers the trends shaping portfolios.

Last Edited by: LPL Research

Last Updated: October 15, 2026

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IN THIS ARTICLE

The economy does not need every sector to perform well at once to keep growing. Right now, credit is still flowing and businesses are borrowing. A recent survey from the Federal Reserve shows that large banks kept lending standards steady while smaller banks loosened them. Companies are asking for more loans, and demand has risen from firms of all sizes. 

Terms of these loans are improving as well. Even though interest rates remain high compared to the past 15 years, banks are narrowing the extra amount they charge above their own borrowing costs. Businesses can access capital at slightly better terms than headlines suggest. When companies invest in equipment, hiring, or expansion, this spending supports broader economic growth.

Housing Stays Stuck

The housing market tells a different story. Many homeowners locked in low mortgage rates years ago and have little reason to sell since rates are currently higher. This creates a gap between what new buyers and existing homeowners are paying. The lock-in effect keeps resale inventory scarce and leaves the market stuck, rather than collapsing.

Home prices have softened from their peaks but remain well above pre-pandemic levels. Sales are weakening in the West and Northeast while the South is on firmer ground. Housing activity is usually connected to spending on furniture, appliances, and home improvement, so stronger regions may see retail benefits.

AI Spending Pays Off

On the Market Signals Podcast, LPL Chief Equity Strategist Jeffrey Buchbinder and Brad Neuman from Alger shared insights on AI investing. The largest cloud providers, including Amazon, Google, and Microsoft, are driving most AI infrastructure spending. A common concern is whether these massive investments will generate enough return to justify the cost.

The data so far says yes, in our view.

Since ChatGPT launched in November 2022, the return on invested capital for these hyperscalers has actually risen. New data centers with advanced chips reach break-even in about two years or less, while the equipment lasts more than five years, leaving several years of cash flow.

For investors worried about a repeat of the dotcom crash, a key difference is profitability. Many dotcom companies never earned money. Today's AI infrastructure investments are already seeing returns.

Bonds: Income Drives Returns

Bond prices move when interest rates change, but income drives long-term returns. Consider a five-year bond paying 4.5% per year. If rates rise by one full percentage point, the bond's price drops about 4.4%. One year of income at 4.5% covers that loss. Over five years, the bond pays roughly 22.5% in income, and held to maturity, the investor gets full face value back.

The year 2022 illustrates why income matters because bonds lost about 13% as starting yields were below 2%, leaving almost no income cushion. Today, with yields in the 5% to 6% range, that cushion is two to three times larger.

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CREDIT, AI, & BONDS FAQs

What does "return on invested capital" mean?

Return on invested capital measures how efficiently a company turns spending into profit. This is currently relevant because companies are building data centers for billions, and investors want to know how much cash that investment generates. A higher return means the company uses its money effectively and creates value rather than just spending it.

Existing bonds pay a fixed rate. When new bonds offer higher rates, the older bonds become less attractive, so their market price drops. If you hold a bond to maturity, you receive the full face value despite price swings along the way. The income you collect each year helps offset temporary price declines.

Disclosures

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. ​

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. ​

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. ​

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy. ​

All investing involves risk, including possible loss of principal. ​

US Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. ​

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The PE ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher PE ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower PE ratio. ​

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio. ​

Precious metal investing involves greater fluctuation and potential for losses.

The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors.​

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Indexes are unmanaged and cannot be invested in directly.

The MSCI US Broad Market Index captures broad U.S. equity coverage. The index includes 3,204 constituents across large, mid, small and micro capitalizations, about 99% of the U.S. equity universe. Indexes are unmanaged and cannot be invested in directly.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Private credit carries certain risks — illiquidity, opacity, borrower concentration, and bespoke structures — that distinguish it from corporate bonds and bank loans and complicate its evaluation and oversight.

All index data from FactSet or Bloomberg.

This research material has been prepared by LPL Financial LLC.

Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Guaranteed | Not Bank/Credit Union Deposits or Obligations | May Lose Value

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