Quick Takes
- Equities Rotated. A selloff in tech stocks sent the S&P 500 0.9% lower in October, while the equal-weight S&P 500 climbed 4.9% as investors rotated into defensive sectors like staples and utilities, which both finished the month up double-digits.
- Inflation & Interest Rates. Headline CPI climbed 0.6% MoM in September, the fastest rate since May, with headline CPI rising 3.7% YoY and core CPI 2.6% YoY as persistently high oil prices kept energy inflation elevated. Yields moderated across the long end of the curve, with the 10Y Treasury dipping back below 5% near month-end.
- AI Stocks Sell Off. Renewed AI skepticism sent the broader tech sector tumbling -6.8% in October as rising corporate debt yields from hyperscalers and neoclouds, alongside worse-than-expected free cash flow burn from mega-cap AI names spooked investors out of the trade.
- The Fed Holds. In a 10-2 vote at its October 28 meeting, the FOMC decided to hold rates steady in the current 3.75%-4.00% range, with FOMC member Hammack and Fed Governor Cook dissenting in favor of a hike. As of month-end, markets currently expect a ~75% chance of a December rate hike.
Asset Class Performance
Equities fell for a second consecutive month in October after AI-related stocks sold off at the end of the month as investors became worried over the spending of some of the largest AI hyperscalers. Emerging market indices felt more pronounced impacts as tech-heavy markets in South Korea and Taiwan weighed on indices.
Markets & Macroeconomics
October was a turbulent month for markets as a sharp selloff in AI-linked stocks pulled the Nasdaq 100 down 6.7% and the S&P 500 falling 0.9%, leaving the S&P within one cent of its May 29 close despite a record high on October 6. The selloff came from a combination of credit stress at highly levered neoclouds alongside earnings reports showing heavy free cash flow burn from some of the largest tech companies. Market leadership broadened on the selloff: the Dow rose 1.7% and the equal-weight S&P 500 gained 4.9%, outpacing its cap-weighted peer by the widest margin since April 2009. Information Technology and Communication Services were the only two sectors to finish lower in October, while Energy, Consumer Staples, and Utilities each gained double digits. Bonds steadied after a difficult September marred by concerns over government finances, heavy debt issuance, and rising inflation. The 10-year Treasury yield fell back below 5% by month-end as investors stepped back from the AI trade and a soft labor report supported Treasury demand. October’s macro releases once again left the Fed in a tricky situation. Energy prices from the Iran War continued to pressure US inflation, with Brent crude climbing past $110 late in the month and national average gas prices holding near $4.30. Headline CPI rose 0.6% in September, its fastest pace since May, lifting annual inflation to 3.7%, while core rose 2.6% YoY. PPI followed a similar path, jumping 1.3% on the month against expectations of 0.6%, the fastest pace since 2022, and up 6.3% YoY. The PCE price index rose 3.6% YoY with core PCE up 3.1%, both in-line with estimates. The labor market was softer than expected, adding just 29,000 jobs in September against expectations of 90,000, and the unemployment rate ticked up to 4.2%. Economic growth held up, with the advance estimate of Q3 GDP showing the economy growing at a 3.4% annualized pace as AI-related investment and resilient consumer spending kept the economy expanding. Sentiment remained subdued, with the University of Michigan’s consumer sentiment survey ending the month at 48.0. The FOMC ultimately voted 10-2 at its October meeting to hold rates in their current 3.75%-4.00% range, with Governor Cook and Fed President Hammack dissenting in favor of a hike. At month-end, markets implied a near-75% chance of a December rate hike.
Bottom Line: AI cash burn drove a rotation out of tech and into energy and defensives, while hot inflation and soft hiring kept the Fed on hold.
©2026 Prime Capital Investment Advisors, LLC. The views and information contained herein are (1) for informational purposes only, (2) are not to be taken as a recommendation to buy or sell any investment, and (3) should not be construed or acted upon as individualized investment advice. The information contained herein was obtained from sources we believe to be reliable but is not guaranteed as to its accuracy or completeness. Investing involves risk. Investors should be prepared to bear loss, including total loss of principal. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Past performance is no guarantee of comparable future results.
Source: Sources for this market commentary derived from Bloomberg. Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by the Prime Capital Investment Advisors. The performance of those funds June be substantially different than the performance of the broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares U.S. Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by: 30% U.S. Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4% Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.
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