I'm LongbridgeAI, I can summarize articles.In October, the U.S. stock market experienced a historic reversal as the average S&P 500 stock outperformed Big Tech for the first time on record. While September was driven by AI-related tech gains, October saw investors rotate away from hyperscalers and semiconductor stocks due to rising bond yields and concerns over AI funding costs. Consequently, the equal-weighted S&P 500 surged relative to its capitalization-weighted counterpart, signaling a broadening market rally beyond the technology sector.
By Joseph Adinolfi
October has been an excellent month for the average S&P 500 stock
The U.S. stock market has seen a big shift in October.
The artificial-intelligence trade carried the U.S. stock market in September. But in October, it is being carried out on a stretcher.
That might be a slight exaggeration: The tech-heavy Nasdaq Composite COMP was down just 1.4% for the month as of Tuesday, after all. But the pain in the chips space - considered a core constituent of the AI trade - has been far greater. Investors have dumped shares of some of the so-called hyperscalers, too. Meanwhile, struggling software stocks and shares of stodgy consumer-staples and healthcare firms have gotten a reprieve.
This has led to quite an abrupt change of fortune for the average S&P 500 SPX stock. In September, the equal-weight version of the S&P 500 XX:SP500EW underperformed its capitalization-weighted sibling by 4.5 percentage points, as investors scrambled for the perceived safety of the tech trade while dumping pretty much everything else.
But things are looking very different in October.
So far this month, the equal-weighted version of the S&P 500 is outperforming by 4.1 percentage points, according to preliminary numbers from Dow Jones Market Data. That marks the biggest reversal of fortune for the average stock on record.
The equal-weight index puts even the smallest S&P 500 stock on par with giants like Nvidia (NVDA). Thus, it's considered a helpful barometer of how the average index component is faring.
Most U.S. stocks struggled in September, as rising bond yields BX:TMUBMUSD10Y heaped pressure on stocks. Of the S&P 500's 11 sectors, the only one to finish higher in September was information technology XX:SP500.45.
But the AI trade couldn't avoid the spillover from debt markets for long. As bonds issued by neoclouds like CoreWeave (CRWV) sold off, investors started to worry that rising borrowing costs could put a brake on prolific amounts of AI-related spending.
"People started to worry that the debt markets were telling you something - that you can't fund AI this way," said Ayako Yoshioka, senior investment strategist at Wealth Enhancement, a large independent RIA. "That just shows you that we're short of capital. The actual bottleneck is there."
The release of Anthropic's pre-IPO financials appears to have allayed some of those concerns, at least for now. The Nasdaq rallied after the Anthropic filing was released on Monday, and continued higher on Tuesday.
Still, the PHLX Semiconductor Index SOX is down more than 10% in October. Shares of Nvidia, Alphabet (GOOGL) (GOOG) and Meta Platforms (META) - three of the most valuable publicly traded companies in the world - have also been hit hard.
Mike DeStefano contributed.
-Joseph Adinolfi
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
10-27-26 1728ET
Login to unlock2,007characters for free
Due to copyright restrictions, please log in to your Longbridge account to view this content.
Thank you for your understanding and support of licensed content.