Fixed Income & Equities Markets Week in Review

The second full week of October was volatile for the AI trade as investors rotated away from technology names into defensive sectors. Concerns about competition, financing, monetization, and valuation weighed on the AI trade, with memory, semiconductor, and neocloud names among the hardest hit. Through Thursday’s close, a defensive investor tilt helped the blue-chip Dow Jones Industrial Average gain 1.01% for the week. By comparison, the S&P 500 Index declined 0.85%, and the technology-heavy Nasdaq Composite fell 2.39%.

Downward pressure on the AI trade emerged early in the week. Reports of major progress in memory density from state-backed Chinese memory name CXMT raised concerns about competition in the memory market and a potential supply glut. The Roundhill Memory ETF (DRAM) declined 13.7% through Thursday’s close. Sentiment was further challenged by ongoing questions beyond memory relating to AI-related debt issuance, the pace of monetization, intensifying frontier model competition, and elevated valuations. In addition, Anthropic, which is expected to complete its initial public offering next month, reportedly posted weaker-than-expected third-quarter revenue. Together, these developments prompted a broader risk-off rotation into areas viewed as offering greater safety and value. The S&P 500 Information Technology sector fell 3.9% through Thursday, with memory and semiconductor companies among the principal detractors; the iShares Semiconductor ETF (SOXX) declined 8.0% and was on track for its ninth consecutive down session as of Friday morning.

Fresh inflation data released this week did little to alter the risk-off backdrop. September’s core Consumer Price Index (CPI) rose 0.3%, above the 0.2% consensus estimate, while core Producer Price Index (PPI) increased 0.7%, well above the 0.3% expected. Energy prices also remained elevated, with West Texas Intermediate crude moving back above $100/barrel Friday morning. Even so, some mildly dovish Federal Reserve (Fed) commentary of late, and noncommittal remarks regarding monetary policy from Fed Chair Kevin Warsh, have supported market expectations that policymakers will leave rates unchanged at the Fed’s October meeting. As of Friday morning, the CME FedWatch Tool signaled an ~83% probability that the Fed would hold its target rate steady later this month, up from ~72% on Thursday. Looking further ahead, market probabilities show an ~89% chance of a rate hike in December.

The Health Care and Consumer Staples sectors were the week’s strongest-performing S&P 500 sectors as investors sought defensive exposure. Both sectors advanced 3.7% through Thursday’s close. The rotation away from technology also supported improved market breadth: the S&P 500 Equal Weight Index outperformed the capitalization-weighted S&P 500 by ~1.8% for the week. Despite this week’s improvement in breadth, the capitalization-weighted index continues to outperform the equal-weighted index by ~1% year to date, following a strong showing in the third quarter.

Third-quarter earnings season will accelerate in the coming weeks. This week’s reports were led by large US banks and although results and subsequent stock-price reactions were mixed, overall earnings remained strong and company guidance was generally viewed as positive. Market expectations appear elevated, potentially creating a high hurdle for companies and their respective third quarter results. This may lead to uneven market reactions. The S&P 500 has generally traded within the 7,600–7,800 range in recent months, but this week, for the first time in more than 50 sessions, recorded a daily decline of more than 1%. We will see whether market volatility picks up as third-quarter earnings season ramps and US midterm elections approach. The blended third-quarter earnings growth rate for the S&P 500 sits at 29.0%; 79 S&P 500 constituents are scheduled to report next week.

As of October 15, 2026