U.S. stocks face one of their sternest challenges of the year in the weeks ahead, and investors are already starting to buckle up.
Big Tech earnings, a Federal Reserve interest-rate decision, and midterm elections set up an especially tricky patch for stocks over the next 10 days. These events—along with elevated oil prices and geopolitical tensions abroad—will likely dictate the pace of a weakening market over the final stretch of the year.
The stock market has been at similar crossroads several times before, most acutely in March. That’s when the S&P 500 slumped nearly 9% in the weeks that followed the first U.S. attacks on Iran, oil spiked close to $120 a barrel and accelerating inflation led to a more hawkish Fed, despite pressure from the White House.
But now stocks face a host of issues—some that echo the spring’s headwinds along with fresh worries that have developed over the autumn months.
Chief among them is the artificial-intelligence investment boom, as investors have started to doubt how long its blazing pace can last. The AI trade took a hit last week after Meta Platforms’ third-quarter earnings— which included another uptick in capital spending plans —and the continued slump in semiconductor stocks tied to the broader buildout.
Alphabet, Amazon.com, and Microsoft will have a chance to steady the ship when they report September-quarter earnings this week. Each company should offer fresh demand and spending outlooks that will bleed into 2027. Their reports could revive—or further drag down—the broader tech trade, which has lost a notable amount of steam heading into the final months of the year.
The PHLX semiconductor index, colloquially known as the SOX, has tumbled some 15% this month and is now about 26% south of its record high close in late June. An index of the Magnificent Seven tech giants, meanwhile, turned negative for the month last week following Meta’s poorly-received earnings report.
John Belton, portfolio manager at Gabelli Funds, says the SOX’s stretch of underperformance—one of the worst in 20 years when compared with the S&P 500 over the past 10 days—reflects a “risk-off” tenor in markets, but that has less to do with the AI trade and more reflects the broader risks of oil, inflation, and softening domestic growth.
“The discouraging thing about the latest drawdown is that all else equal, most of what we’ve heard recently suggests AI value chain revenues will be higher for longer,” he said. “But we are in a market where fundamentals matter less, and the market is concerned about the durability of the cycle given questions on ultimate AI monetization.”
The market’s tech-led slump has also triggered a massive rally in U.S. Treasury bonds, reflecting concerns that a slowdown in AI spending could clip domestic growth prospects over the coming year.
Benchmark 10-year Treasury notes yields were last marked at 4.965%—down from around 5.35% in mid-October—amid concerns over the tech-led slump in stocks and the developing fiscal crisis in France.
French 10-year bonds, known as OATs, are now trading with a yield of 5.055% amid a budget and social crisis that has gripped Europe’s second largest economy for much of the month. Those yields have surged nearly 185 basis points since late February.
Global oil prices are also rising with a worrying swiftness into the end of October as well. Brent crude closed Friday at $111.70 a barrel, after hitting a fresh five-month intraday price of $116.50 a barrel, extending its monthly gain to just under 18%.
Adam Turnquist, chief cross-asset strategist at LPL Financial, says the crude market is poised for further gains ahead.
“Brent’s technical breakout is supported by rising geopolitical risk and an underlying uptrend,” he said, adding that market positioning suggests crude could see more price gains.
And of course, the Fed will wrap up its two-day policy meeting on Wednesday. Markets will be keen for signals of any rate increases to come. From there, the midterm elections loom —the outcome of Nov. 3 could rearrange the U.S. political landscape. Not to mention that around a third of S&P 500 companies report September-quarter earnings this week.
The collective risks have triggered a leap in market volatility readings. The Cboe Volatility Index, or VIX, the market benchmark, traded north of 20 on Friday, a level it has breached only a handful of times since the stock market’s late-March selloff.
At current levels, the VIX suggests daily swings of 1.27%, or around 98 points, for the S&P 500 over the next four weeks.
Market breadth, however, has improved notably over the past month, with eight of the S&P 500 11 sectors trading in the green—offsetting the notable 7% slide in information technology stocks.
The massive weight of those tech stocks, however, is hard to ignore over the longer term. That explains why the S&P 500 is trading just 2% higher than it was in mid-May, when it crossed the 7500-point threshold for the first time on record.
The S&P 500 tech sector index is up just 4.4% since then, while the communications services sector index has fallen 9.1% and the consumer discretionary index, which includes Amazon, has slid 4.3%.
That likely means it could ultimately all come down to tech. The coming slate of Big Tech earnings, as well as Nvidia’s third-quarter update in late November, will be the broader market’s biggest focus into the final stretch of 2026.
But investors aren’t taking any chances, either.
Last week saw the biggest one-day outperformance for an equal-weighted index of S&P 500 stocks, compared with the tech-heavy benchmark, in at least two years. That suggests that investors are still keeping their money in the broader market while tech’s troubles play out.
In fact, the 2% gap was one of the largest on record, topped only in 1995, 1999, and 2000.
“Most of the S&P 500 has managed to shrug off the fall in tech stocks over recent days, thanks in large part to a boost from falling Treasury yields,” said James Reilly, senior market economist at Capital Economics. “But we expect both tech and non-tech stocks, along with Treasury yields, to tumble if AI concerns mount.”
Tech has brought the market, at times kicking and screaming, to this year’s record highs. We’ll find out very soon if the sector has the strength to do that into the final run of 2026.
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