Key Takeaways
- U.S. business activity saw a significant acceleration in October, with the S&P Global Composite PMI rising to 54.8, exceeding expectations and reaching a three-month high.
- September U.S. inflation came in softer than anticipated, with the headline Consumer Price Index (CPI) rising 0.3% month-on-month and 3.0% year-on-year, potentially paving the way for further Federal Reserve rate cuts.
- Baker Hughes (BKR) anticipates a challenging 2026 with low activity and reduced spending in the upstream oil and gas sector, following a projected high-single digit drop in worldwide upstream spending for 2025.
- The International Energy Agency (IEA) forecasts a substantial global oil surplus of as much as 4 million barrels per day (bpd) in 2026, contributing to the bearish outlook for crude oil futures.
U.S. Economic Indicators Point to Robust Growth and Cooling Inflation
The U.S. economy demonstrated surprising strength in October, with S&P Global's flash Purchasing Managers' Index (PMI) data indicating an acceleration in business activity. The Composite PMI Output Index rose to 54.8 in October from 53.9 in September, marking a three-month high and signaling growth above the third-quarter average. This expansion has been continuous for 33 consecutive months.
The services sector was a primary driver of this growth, with the Services PMI climbing to 55.2 in October, up from 54.2 in the previous month and significantly surpassing market expectations of 53.5. This represents the second-sharpest pace of growth in the sector this year, with new orders rising at their fastest rate in 2025. Manufacturing also showed improvement, as the Manufacturing PMI edged up to 52.2 in October from 52.0 in September, slightly exceeding the 51.9 estimate. This marks the ninth improvement in factory conditions in ten months, supported by accelerating production.
Concurrently, U.S. inflation data for September provided a "sigh of relief" for policymakers and investors. The Consumer Price Index (CPI) increased by 0.3% month-on-month, falling below the 0.4% consensus forecast. On a year-over-year basis, headline inflation slowed to 3.0%, also better than the 3.1% consensus. Core CPI, excluding volatile food and energy components, rose by 0.2% month-on-month and 3.0% year-on-year, both slightly below expectations. This softer inflation print is seen as bolstering the likelihood of the Federal Reserve implementing another 25-basis-point rate cut at its upcoming meeting, with a high probability of a subsequent cut in December.
Baker Hughes Navigates Anticipated Industry Downturn into 2026
Despite the positive domestic economic signals, the energy sector is bracing for a period of reduced activity. Baker Hughes (BKR), a key oilfield services provider, has indicated that early signs point to another year of low activity and reduced spending in 2026. This follows a projected slight drop in worldwide upstream spending for 2025. Analysts have noted a reduction in EBITDA estimates for 2025 and 2026 for Baker Hughes, primarily due to anticipated challenges in North American and international markets.
Specifically, North American upstream expenditures are expected to decline by 10-15%, while international spending is forecast to decrease by 5-10%. This outlook is influenced by a broader industry trend of declining crude oil futures and a persistent supply glut. The IEA has warned of a substantial global oil surplus, forecasting as much as 4 million bpd in 2026, following a 2.35 million bpd surplus in 2025. This oversupply is driven by robust increases in global oil supply, particularly from non-OPEC+ nations like the U.S.
Amidst these headwinds, Baker Hughes is strategically focusing on natural gas infrastructure, which positions it to capitalize on the global transition towards cleaner energy sources. The company recently topped Wall Street's third-quarter forecasts, reporting $7.01 billion in revenue and securing substantial orders for LNG technology and oilfield equipment, driven by strong global energy demand. Management has also upped its full-year order outlook, with analysts largely maintaining a bullish stance on the stock due to its focus on LNG and integrated energy technology.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.