October S&P 500 Lead Faces Dual Test This Week

The S&P 500 has outperformed its full index by 6.4 percentage points this October when AI stocks are excluded. Chipmaker declines tied to AI spending and financing concerns have pushed that gap toward a record monthly figure.
That shift came just a month after the ex-AI group trailed by 5.1 points. AI-related companies represent roughly 45% of the benchmark, a weighting that has turned into a headwind this month.

3 Weeks of Selling Built the Widest Gap on Record

The majority of that lead was accumulated over the prior three weeks, during which ex-AI stocks beat the full index by 7.4 points. According to Bloomberg figures cited by The Kobeissi Letter, no three-week gap has ever been larger.

The current monthly margin of 6.4 points also far exceeds the prior record of 3.6 points from July. Market leadership has frequently flipped, with ex-AI stocks ahead in four months of 2026 and the broader index leading in six.

Concerns about AI expenditure and increasing financing costs started pulling AI shares lower this month. A stronger-than-expected inflation reading on October 14 intensified the selloff by reigniting expectations for another rate increase from the Federal Reserve. Tighter monetary policy would raise the cost of debt-financed AI investment.

Semiconductor companies suffered the worst declines, as the Philadelphia Semiconductor Index dropped for eight consecutive trading days. This was the index's longest run of losses since 2008.

Funds exiting semiconductor stocks flowed into energy and consumer staples sectors, both of which posted double-digit gains in October through October 22, according to CNBC figures. That rotation temporarily wiped out the lead that AI shares had accumulated over 2026.

2 Tests Now Stand Before October Closes

The monthly record still needs to hold for three more trading sessions, and two events this week could determine its fate.

The first event is the Federal Reserve's interest-rate decision due today. Investors have already factored in a hold, with the CME FedWatch tool indicating roughly a 90% probability of no change.

This focuses attention on the Fed's commentary about December, when futures markets assign about a 75% likelihood of another rate increase.

The second event is the quarterly reports from Microsoft and Alphabet due this week. Meta Platforms stock dropped over 9% in the previous week after the firm posted its first ever negative free cash flow. Evercore analyst Mark Mahaney noted that the upcoming big-tech earnings could increase capital expenditure by as much as $100 billion.

AI-related stocks have already begun to rebound in anticipation of both events. The semiconductor index rose roughly 7% over three trading sessions ending October 27.

The record lead from July reversed into a 5.1-point lag within two months. Whether October's margin survives depends on whether this week alleviates concerns over AI investment or exacerbates them.