October Left Tech Leaders Behind Amid Market Broadening

Matthew Rubin Chief Investment Officer

Key Points

• The S&P 500 Index declined in October, but nine of 11 sectors and the average S&P 500 stock advanced.
• Market breadth improved as leadership shifted away from mega-cap technology stocks toward value, dividend-paying, and defensive stocks.
• Investors are increasingly distinguishing between the potential of artificial intelligence (AI) and the potential financial returns of companies invested in it.
• Economic activity remains strong, although persistent inflation and elevated energy prices are creating challenges for consumers and monetary policy.
• Despite October’s decline in Treasury yields, the cost of capital remains elevated relative to the low-rate environment of the past decade.
• Earnings growth continues to support equities, but investors are becoming more discerning about the quality and stability of those earnings.

The S&P 500 Slipped, but Most of the Market Rose

The S&P 500 fell 0.9% in October, leaving it up 11.7% for the year. The S&P 500 Equal Weight Index, which gives every company the same weight regardless of size, gained 5.0% for the month and is up 15.5% year to date. The Dow Jones Industrial Average rose 1.8% and the small-cap Russell 2000 added 0.6%. The technology-heavy Nasdaq 100 Index fell 6.6%.¹

Nine of 11 S&P 500 sectors advanced in October despite the index’s negative performance. The top-performing sectors included energy, up 14.0%; consumer staples, up 11.6%; utilities, up 10.2%; and health care, up 9.9%. Information technology fell 6.8% and communication services dropped 15.1%. Value outperformed growth by 10.3 percentage points, with the S&P 500 Value Index up 4.9% against a 5.4% decline for the S&P 500 Growth Index.¹

Outside the United States, developed markets, as measured by the MSCI EAFE Index, slipped 0.7% and are up 10.1% year to date. Emerging markets, as measured by the MSCI Emerging Markets Index, declined 8.0% amid a selloff in Asian semiconductor stocks.¹ South Korea’s KOSPI fell 7.6% on October 15^th alone, with SK Hynix and Samsung Electronics also dropping sharply.²

Fixed income performance helped offset equity market weakness. The Bloomberg Global Aggregate returned 1.4% for the month, though it remains down 1.3% for the year.¹

Source: Bloomberg. Total returns as of October 30, 2026. Past performance is not indicative of future results. Indexes are unmanaged and cannot be invested in directly.

Market Breadth Improved as Leadership Shifted

In October, market performance was more constructive beneath the surface than the headline S&P 500 Index performance suggested. The equal-weight S&P 500 outperformed the capitalization-weighted index by 5.9 percentage points, the widest monthly margin since April 2009.¹ Put simply, the average S&P 500 stock gained 5.0% even as several of the largest technology stocks declined significantly.

Leadership shifted toward value, dividend-paying, and defensive stocks. The market’s performance in October was less dependent on a narrow group of technology companies. But the defensive character of the market rotation suggests investors remained cautious rather than broadly embracing risk.

Broader participation generally benefits a well-diversified portfolio, and the increased dispersion between sectors and investment styles in October reinforces the importance of maintaining balanced equity exposure. It is important, however, to distinguish between a healthier distribution of market returns and sustained improvement in investor risk appetite.

Source: Bloomberg, S&P Dow Jones Indices. Total returns as of October 30, 2026. Past performance is not indicative of future results.

The Focus on AI Shifts from Growth to Returns on Investment

Demand for AI infrastructure and cloud services remained strong in the third quarter: Google Cloud revenue grew 103% and Amazon Web Services revenue grew 39% from a year earlier.^3,4 Third-quarter earnings also highlighted the magnitude of capital spending by large technology companies.

Investors increasingly scrutinized whether companies can finance expansion from their own cash flow or must rely on debt and equity issuance. Among the largest technology companies, October returns diverged: Microsoft rose 1.8%, while Alphabet fell 18.7% and Meta fell 15.2%.¹ Both Alphabet and Meta had turned to bond or stock markets to help fund their spending.⁵ Meanwhile, Amazon declined 3.5% and semiconductor stocks^* fell about 15% amid a reassessment of AI-related investment spending.¹

AI remains an important long-term investment theme, but spending growth does not automatically translate into attractive shareholder returns. Higher financing costs increase the importance of capital efficiency, return on invested capital, and sustainable free cash flow. Strong businesses are not necessarily attractive investments at every valuation. While innovation can create opportunity, valuations, financing structures, and returns on capital remain critical to investment outcomes.

Economic Growth Remains Resilient, but Inflation Complicates the Outlook

Economic activity remains strong, but persistent inflation and elevated energy prices are creating challenges for consumers and monetary policy. Third-quarter real GDP increased at a 3.4% annualized rate in the advance estimate released in late October, up from 2.2% in the second quarter.⁶ Consumer spending and business investment supported growth, and continued investment in technology infrastructure contributed to business spending.

Despite the strong output, September was a slower month for hiring, with employment increasing by just 29,000 jobs and unemployment increasing to 4.2%.⁷

Meanwhile, inflation accelerated in September, with the headline Consumer Price Index rising 3.7% year-over-year. Core CPI, which excludes volatile food and energy prices, increased 2.6% year-over-year.⁸ Energy prices contributed significantly to the acceleration in headline inflation. Higher oil prices and continued geopolitical uncertainty may add further inflationary pressure. With consumers facing elevated prices and financing costs, inflation-adjusted disposable income fell 0.3% in September.⁹

Economic resilience continues to support corporate revenues and earnings. But strong growth also reduces the urgency for the Federal Reserve (Fed) to ease monetary policy. The key question for investors is whether energy-driven inflation will become more persistent and spread into broader consumer prices.

Source: U.S. Bureau of Labor Statistics, via Bloomberg. 12-month percent change, not seasonally adjusted, January 2024 to September 2026.

The Fed May Keep Interest Rates Higher for Longer

Despite October’s decline in Treasury yields, the cost of capital remains elevated relative to the low-rate environment of the previous decade. The 10-year Treasury yield closed at 5.30% on October 5^th, its highest close since 2002, before declining to 4.93% by month-end as investors sought safety during the tech-sector selloff.¹

Meanwhile, the Fed maintained its target range at 3.75% to 4.00% at its October meeting. Two members dissented in favor of a 25-basis-point increase.¹⁰ As of month-end, futures implied roughly a 73% probability of another quarter-point increase at the December meeting.¹¹ Inflation, government borrowing, and Treasury supply remain important influences on the direction of longer-term rates.

Higher interest rates impact companies and investors in several ways. They increase the discount rate applied to future corporate earnings, which particularly affects long-duration growth assets whose profits sit years in the future. Additionally, elevated borrowing costs create challenges for highly leveraged companies and investments. Higher starting yields than investors have seen for much of the past decade also improve the income potential of high-quality bonds. Duration management and credit quality remain important, particularly if inflation pressures persist.

Source: Bloomberg (USGG10YR Index). Daily closing yields, January 2000 to October 30, 2026.

Strong Fundamentals Meet More Selective Valuations

Corporate earnings growth continues to support equities, but investors are becoming more discerning about the quality and sustainability of those earnings. With 60% of S&P 500 companies reporting third-quarter results by October 30^th, blended earnings growth stood at 30.2% year-over-year, and revenue growth was 13.4%. Of the companies that reported, 82% exceeded consensus earnings estimates. The forward 12-month S&P 500 price-to-earnings ratio was 18.7x.¹²

Earnings growth is also extending beyond the largest technology companies. The “Magnificent 7” were on track for 22.6% growth versus 32.6% for the other 493 companies in the index. That comparison comes with caveats: It uses reported earnings, which included one-time items at several of the largest companies, and two of the seven companies had not yet reported.¹²

Corporate profitability remains a central support for equity valuations. However, a higher cost of capital increases scrutiny of how earnings translate into free cash flow. As market leadership broadens, strong fundamentals and reasonable valuations matter more, and investors become more concerned about the price they pay for earnings growth and the capital required to generate it.

Portfolio Perspective: What October Means for Investors

This section reflects our general views, not individualized advice. Appropriate positioning depends on each investor’s goals, time horizon, risk tolerance and circumstances.

In the current environment, diversification and selectivity are particularly important. Investors should consider not simply the number of investments they hold, but how broadly diversified they are across the entire portfolio.

Equities: Market performance in October illustrated the risk of relying on a small group of market leaders. We believe broad diversification across sectors, styles, and market capitalization remains important, and favor companies with durable earnings, strong balance sheets, and sustainable cash generation. Value and defensive companies can contribute meaningfully to performance when growth leadership weakens, as it did in October.

Fixed Income: Fixed income investments can still provide diversification during equity market volatility, and higher starting yields are improving the income potential of high-quality bonds. However, duration exposure warrants attention given the possibility of renewed interest-rate volatility. Credit selection remains important, particularly among the lowest-rated borrowers, where spreads widened in October.¹³ For tax-sensitive investors, municipal bonds may be worth exploring in the current environment.

International Equities: We believe a diversified global allocation remains appropriate, while bearing in mind that technology concentration is not exclusively a U.S. market phenomenon. Selectivity also matters here, as valuations, currencies, monetary policy, and regional economic conditions differ across markets.

Alternative Investments: In the current environment, liquidity, leverage, and manager selection deserve special attention. Higher borrowing costs can affect private equity returns, real estate valuations, and exit activity. Meanwhile, private credit income moves with short-term rates, and underlying borrower quality and underwriting discipline remain essential.

What We’re Watching

• Inflation: Whether energy pressures translate into more persistent core inflation.
• Federal Reserve policy: The December policy decision and the economic data informing it.
• Treasury yields: Whether longer-term rates stabilize or renewed inflation concerns push yields higher.
• Corporate earnings: Whether earnings growth continues broadening beyond mega-cap technology.
• AI capital expenditures: Evidence that significant investment in infrastructure is generating sustainable financial returns.
• Consumer health: The effect of higher prices and borrowing costs on household spending.
• Credit markets: Signs of stress among lower-quality borrowers.

Closing Thought: Discipline Matters as Market Leadership Evolves

October reminded us that market performance is rarely uniform. While a small group of technology stocks weighed on the major indices, much of the broader equity market advanced, and the Bloomberg Global Aggregate bond index gained 1.4%.¹ Strong economic growth and corporate earnings remain important supports, but a higher cost of capital is changing the way investors evaluate opportunities.

Rather than attempting to predict which sector or asset class will lead next, we believe the emphasis should remain on building diversified portfolios designed to participate in growth, generate income, and manage risk across changing market conditions. We believe long-term investing success depends less on identifying every change in market leadership and more on maintaining discipline, understanding risk, and constructing portfolios designed to navigate those changes.

 
Note: Figures as of October 30, 2026. All figures are total returns unless noted.
^*Semiconductor stocks are represented by the PHLX Semiconductor Index (SOX).

Sources:
¹ Bloomberg. Total returns for the S&P 500, S&P 500 Equal Weight, Nasdaq-100, Dow Jones Industrial Average, Russell 2000, MSCI EAFE, MSCI Emerging Markets, Bloomberg Global Aggregate, S&P 500 sector, S&P 500 Value, S&P 500 Growth and PHLX Semiconductor indexes; Microsoft, Alphabet, Amazon and Meta Platforms shares; and the 10-year U.S. Treasury yield. As of October 30, 2026.
² CNN Business. Chipmaker sell-off sends investors to other stocks and bonds for safety. October 15, 2026. cnn.com.
³ Alphabet Inc. Third Quarter 2026 Results (Form 8-K, Exhibit 99.1). October 28, 2026. sec.gov.
⁴ Amazon.com, Inc. Third Quarter 2026 Results (Form 8-K, Exhibit 99.1). October 29, 2026. sec.gov.
⁵ Alphabet Inc. Alphabet Announces Upsize and Pricing of $84.75 Billion Equity Capital Raise (Form 8-K, Exhibit 99.2). June 2, 2026. Meta Platforms, Inc. Senior notes offering (Form 8-K). April 30, 2026; and mandatory convertible preferred stock offering (Form 8-K). October 29, 2026. sec.gov.
⁶ U.S. Bureau of Economic Analysis. Gross Domestic Product, Third Quarter 2026 (Advance Estimate). Released October 29, 2026. bea.gov.
⁷ U.S. Bureau of Labor Statistics. The Employment Situation, September 2026. Released October 2, 2026. bls.gov.
⁸ U.S. Bureau of Labor Statistics. Consumer Price Index, September 2026. Released October 14, 2026. bls.gov.
⁹ U.S. Bureau of Economic Analysis. Personal Income and Outlays, September 2026. Released October 29, 2026. bea.gov.
¹⁰ Board of Governors of the Federal Reserve System. Federal Reserve issues FOMC statement. October 28, 2026. federalreserve.gov.
¹¹ Bloomberg. World Interest Rate Probability (fed funds futures). As of October 30, 2026.
¹² FactSet Research Systems. Earnings Insight. October 30, 2026.
¹³ ICE Data Indices, LLC. ICE BofA CCC & Lower US High Yield and ICE BofA BB US High Yield Index Option-Adjusted Spreads, retrieved from FRED, Federal Reserve Bank of St. Louis. As of October 30, 2026.

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Index Definitions
The S&P 500^® Index is a float-adjusted, market-capitalization-weighted index of 500 leading U.S. companies, maintained by S&P Dow Jones Indices. Constituents are selected by an index committee, and the index covers approximately 80% of available U.S. equity market capitalization. It is widely used as a benchmark for U.S. large-cap stocks.
The S&P 500^® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight – or 0.2% of the index total at each quarterly rebalance.
The Nasdaq-100 Index is a “modified capitalization-weighted” index designed to track the performance of a market consisting of the 100 largest and most actively traded non-financial domestic and international securities listed on The Nasdaq Stock Market, based on market capitalization.
Dow Jones Industrial Average^® (Dow Jones or DJIA) is a stock market index representing the price weighted average of 30 large, publicly owned companies trading on the New York Stock Exchange (NYSE) and the NASDAQ. The component stocks are accorded relative importance based on the prices, unlike other indices which weight by market capitalization. The companies in the DJIA are leaders in their industries, and their stocks are widely held by individuals and institutional investors.
The Russell 2000^® Index is a capitalization-weighted index designed to measure the performance of a market consisting of the 2,000 smallest publicly traded U.S. companies (in terms of market capitalization) that are included in the Russell 3000^® Index.
The S&P 500 sector indices comprise the S&P 500 constituents classified in each of the 11 Global Industry Classification Standard (GICS^®) sectors, weighted by float-adjusted market capitalization.
The S&P 500^® Value and S&P 500^® Growth Indices divide the market capitalization of the S&P 500 into value and growth segments using three value factors (book value, earnings and sales to price) and three growth factors (sales growth, the ratio of earnings change to price, and momentum).
The MSCI EAFE Index is a stock market index that measures the performance of large- and mid-cap companies across 21 developed markets countries around the world. Canada and the USA are not included. EAFE is an acronym that stands for Europe, Australasia, and the Far East.
The MSCI Emerging Markets is a global stock market index that tracks the performance of large and mid-cap companies across 24 emerging markets. It is maintained by MSCI, formerly Morgan Stanley Capital International, and is used as a common benchmark for global emerging market stock funds.
The Korea Composite Stock Price Index (KOSPI) is a capitalization-weighted index of all common stocks listed on the main board of the Korea Exchange.
The Bloomberg Global Aggregate Index is a flagship measure of global investment grade debt from twenty-eight local currency markets. An index is not available for direct investment; therefore, its performance does not reflect the expenses, fees and taxes generally paid with the active management of an actual portfolio.
The PHLX Semiconductor Sector Index (SOX) is a capitalization-weighted index composed of the 30 largest U.S.-listed companies primarily involved in the design, distribution, manufacture, and sale of semiconductors. It was developed by the Philadelphia Stock Exchange and is widely used as a benchmark for the semiconductor industry.
The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending. The CPI is a measure of inflation and deflation. The CPI report uses a different survey methodology, price samples, and index weights than the producer price index (PPI).
The “Magnificent Seven” refers to seven large U.S. technology-related companies: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla.
The ICE BofA BB US High Yield Index and ICE BofA CCC & Lower US High Yield Index are subsets of the ICE BofA US High Yield Index, which tracks below-investment-grade, U.S. dollar-denominated corporate debt publicly issued in the U.S. domestic market. The BB index includes securities rated BB1 through BB3; the CCC & Lower index includes securities rated CCC1 or lower. Option-adjusted spread measures the yield difference between an index and comparable Treasury securities, adjusted for embedded options. CSP2026394