October brought reassessment, not a broad retreat. Investors
seemed to balk at the steep cost of AI and sold tech shares, and inflation
accelerated. However, this was paired with steady growth, even as hiring
slowed.
Against that backdrop, here•s how the market•s benchmarks
fared in October.
Major U.S. Stock Indexes
Behind the Numbers
AI•s payoff comes under scrutiny. Alphabet, Google•s
parent company, and Amazon both missed earnings expectations, and Amazon•s
third-quarter spending on data centers and equipment came in about $20 billion
above forecasts. Most of the largest tech companies kept or only slightly trimmed
their spending plans, leaving investors to question when that investment will
pay off.
Healthy profits, slim surprises. With 60% of S&P
500 companies having reported, 82% of them beat earnings estimates, above the
five-year average, and all 11 sectors showed year-over-year profit growth.
However, earnings only exceeded forecasts by 1.9% in aggregate, well below
historical averages.
Solid growth, stretched families. The economy grew at
a 3.4%
annualized pace in the third quarter, supported by consumer spending and
AI-related investment. But September hiring nearly stalled, with just 29,000
jobs added, and after-tax income fell once adjusted for inflation. That
squeeze on purchasing power kept consumer sentiment subdued throughout the
month.
Inflation heats up, and the Fed holds steady. Consumer
prices rose 3.7% from a year earlier in September, with price pressures
spreading beyond gasoline to other parts of the economy. At its October
meeting, the Federal Reserve (Fed) held
rates steady after September•s hike, but two officials favored another
increase, and markets largely expect one in December.
What to Watch in November
November will show whether October•s tech sell-off stays
contained to a few companies or spreads across the market. Additionally,
October•s jobs and inflation reports, released in November, will shape the
Fed•s December rate decision, while company outlooks and tech earnings will
reveal how resilient consumers remain and whether AI investment is starting to
deliver.
With the midterm elections in focus, it is also worth
keeping in mind that, in the short term, elections can cause market volatility,
though larger, prolonged periods of volatility are commonly driven by other
economic factors.
