The AI trade and many technology stocks just had their scariest October in years, but the rest of the stock market barely noticed. The biggest AI and chip stocks have shed about $5 trillion in market value since Oct. 6, including about $1.6 trillion on Friday alone, according to Yahoo Finance. Just a few weeks ago, the Nasdaq and S&P 500 clinched record highs.
Headlines Mask Underlining Trends
Markets were rattled last month as concerns festered over higher interest rates, tech companies’ AI spending, inflation, and volatile oil prices. The Nasdaq is now down 7.8% from its record high earlier this month and has suffered its worst monthly decline since March 2025. The S&P 500 is down roughly 3% since its peak. Nvidia (NVDA) and Alphabet (GOOG) have each given up roughly $835 billion in market cap, and Intel (INTC) lost nearly half its value in October.
The damage isn’t as bad as the headlines are. The other 625 large US stocks in that tally added about $1.3 trillion. And while the S&P 500 slipped this week, 9 of its 11 sectors rose about 1% or more, something that hadn’t happened in any week since at least 1999.
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Favored “Buy” Stocks Underperformed
Wall Street analysts spent much of 2026 piling Buy ratings onto the AI build-out. The stocks they ignored have done better. The S&P 500 stocks with the biggest share of analyst Buy ratings have trailed those with the smallest share for most of the year, according to Piper Sandler chief investment strategist Michael Kantrowitz.
Measured year over year, it’s the third-worst stretch in Piper’s data going back to 1995. Only two slumps ran deeper, in 2001-02 and 2010. Both came near major market turning points: the first as the tech bubble deflated, and the second as stocks recovered from the financial crisis.
Analyst’s MOST favored stocks have underperformed its LEAST favored stocks for most of 2026, Kantrowitz says. Piper picks both groups from the top and bottom of each of the index’s 11 sectors, so this isn’t tech against everything else.
Historical Case for Optimism
According to the Stock Trader’s Almanac, October selloffs like this one often lead into what the Almanac calls the sweet spot of the presidential election cycle, which runs from the fourth quarter of a midterm year through the following June. Tuesday’s midterm vote comes first. Then November, the S&P 500’s historical best month of the year, gets its turn.
From the last October close of a midterm year to the end of the following June, the S&P 500 has risen 19 out of 19 times since 1950, with a median gain of about 15%. Chip stocks have been 8-for-8 since 1994, with a median gain of about 22%.
Reasons for Caution
Global rate hikes continue to pressure stocks. 42 central banks have hiked rates worldwide over the past six months. The Fed held rates steady last Wednesday, but two officials voted to hike. A rate hike at the December meeting is now highly likely, with the market increasingly convinced of the Fed’s inflation-fighting credibility.
Mark Notes
Most investors own Wall Street’s favorite stocks whether they picked them individually or not. Nvidia (NVDA) and Alphabet (GOOGL) are among the biggest weights in the S&P 500, so any index fund or 401(k) that tracks it leans on their fortunes. The Magnificent 7 stocks account for approximately 34% to 35% of the total market capitalization in a standard market-cap-weighted S&P 500 index fund (such as SPY or VOO).
The current slump also shows how a crowded idea can work against investors. When nearly every analyst already loves a stock, much of the good news is priced in, and few new buyers are left to win over. Prices move based on supply and demand. Earnings disappointments within this group hit stocks and the index funds hard.
Meanwhile, corporate earnings have been very strong in recent quarters, and the ongoing 2026 Q3 earnings season is reinforcing this favorable backdrop. With Q3 results from more than half of S&P 500 members already out, earnings growth is on track to be in double digits for the 8th quarter in a row. Healthcare, Financial Services, and Real Estate saw gains last week. Over the past month, every sector but Technology and Communications Services has rallied.
This article is for general informational and educational purposes only. It is not intended as financial advice, investment guidance, or a recommendation to buy or sell any security. The content reflects publicly available information and broad market commentary. Readers should conduct their own research and consult a licensed financial professional before making investment decisions.
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