October earned its reputation for volatility, though not the way investors might have expected.
October earned its reputation for volatility, though not the way investors might have expected. The S&P 500 (SPX) fell just under 1% for the month, which looks calm on the surface. Underneath, market performance this month completely flipped from what investors experienced in September. The market's largest names did most of the damage, as the Nasdaq-100 (NDX) dropped 6.7% and now sits about 9.5% below its highs. The average stock held up much better, with the Equal Weight S&P 500 Index (SPXEWI) gaining 4.9%.
AI and mega-cap tech names were the clear laggards amid renewed questions about AI spending and financing. Technology fund XLK fell more than 8%, marking a stark departure from its 5% gain in the prior month. Meanwhile, consumer staples (XLP), utilities (XLU), and healthcare (XLV) each gained roughly 10%, which made it a strongly defensive month. That said, a single month’s worth of action shouldn’t change investor’s game plan too much. Technology continues to display long-term strength, remaining an area of focus within portfolios for the time being.
On a positive note, market breadth rebounded sharply throughout the month. Entering the month, only 20% of the S&P 500 traded above their average price from the prior ten weeks. Following the rebound this month, nearly two thirds of S&P 500 members trade above their ten-week average price, indicating sharp improvement in market participation. October's rotation is a meaningful change from the narrow, mega-cap-driven market of recent months. When more stocks participate, it is generally easier for the broader market to move higher, even if the cap-weighted indices are held back by their largest weights. Whether that broadening lasts, or simply reflects investors moving into defensive areas, will be a key question in the weeks ahead.
Looking ahead, investors are entering what has historically been one of the strongest stretches of the calendar. November has been one of the best months for the S&P 500 since 1950, and it begins the seasonally favorable November–April period. The midterm elections on November 3 also add a potential tailwind. Historically, the S&P 500 has been higher in the 12 months following every midterm election since World War II. Elevated oil prices, geopolitical risk, and scrutiny of AI spending all remain on the radar. Still, history points to a constructive backdrop as we head into the final two months of 2026.
