In October, the S&P 500 index excluding AI-linked stocks outperformed the full index by 6.4 percentage points. This performance follows a period where AI-related firms, which account for approximately 45% of the S&P 500, faced downward pressure due to concerns over AI spending and financing costs.
Data from The Kobeissi Letter indicates that over the past three weeks, non-AI stocks outperformed the broader index by 7.4 points, marking the widest three-week spread on record. This exceeds the previous monthly record of 3.6 points set in July. Throughout 2026, the full index has led in six months, while non-AI stocks have outperformed in four.
Market sentiment was further impacted by an inflation report on October 14, which increased expectations for a Federal Reserve rate hike. Consequently, the Philadelphia Semiconductor Index experienced an eight-session losing streak, the longest since 2008. Capital moved from chipmakers into energy and consumer staples, both of which saw double-digit gains through October 22.
Two upcoming events are expected to influence the final monthly results: the Federal Reserve's rate decision and earnings reports from Microsoft and Alphabet. Markets currently anticipate a 90% probability of a rate hold today, with attention focused on signals for December. Additionally, analyst Mark Mahaney suggests that hyperscaler reports could indicate an increase in capital spending of up to $100 billion.
