Author: Sendero Investments

Financial markets experienced an abrupt increase in volatility as investors reassessed the durability of the artificial-intelligence capital-spending cycle and the potential policy implications of the U.S. midterm elections. A sharp technology-led decline on Thursday spread into global equities before a partial rebound on Friday. At the same time, a stronger-than-expected employment report reinforced the economy’s resilience and increased expectations for another Federal Reserve rate increase in December. The S&P 500 fell 2.7% for the week, the Nasdaq Composite declined 3.4%, and the Dow Jones Industrial Average lost 0.9%, as per Bloomberg data.

Markets ended October with a sharp rotation beneath the major indexes. Questions about the scale and near-term returns of artificial-intelligence investment weighed on several mega-cap technology companies, while small- and mid-cap stocks advanced and value outperformed growth for a fourth consecutive week. The Federal Reserve held rates steady, but strong third-quarter growth and firmer inflation kept a December increase firmly in play.

Markets delivered a mixed performance as investors balanced two competing narratives: continued economic resilience and growing concerns about the cost, financing, and ultimate return on the massive capital investments supporting artificial intelligence infrastructure. While large-cap technology stocks came under pressure, leadership broadened into value-oriented and smaller-cap stocks. The rotation beneath the surface of the market was notable. The Russell 2000 gained 2.0% and the Dow Jones Industrial Average rose 0.4%, while the S&P 500 declined 0.5% and the Nasdaq Composite fell 0.7%, as per Bloomberg data. This marked a third consecutive week in which value stocks outperformed growth stocks, suggesting investor leadership is becoming less concentrated than earlier in the year.

U.S. markets diverged sharply as higher-than-expected inflation, rising energy prices, and growing scrutiny of artificial intelligence investment prompted investors to rotate away from large-cap growth stocks. As per Bloomberg data, the Nasdaq Composite declined 4.48%, its fourth consecutive weekly decline, while the S&P 500 fell 1.95%. The Dow Jones Industrial Average gained 0.67%, reflecting comparatively stronger performance among value-oriented and defensive companies.

U.S. equities finished higher despite another volatile week in rates, energy, and technology. The S&P 500 gained 1.2%, the Dow Jones Industrial Average rose 0.9%, and the Nasdaq Composite advanced 0.6%, marking its fourth consecutive weekly gain, as per Bloomberg data. The S&P 500 also reached a record during the week.

Markets absorbed the Federal Reserve’s first interest-rate increase since 2023 with relatively limited index-level disruption, but the week reinforced a more demanding investment environment. The Nasdaq Composite gained 0.7%, supported by renewed strength in technology and artificial intelligence-related companies. The S&P 500 was essentially unchanged, declining 0.1%, while the Dow Jones Industrial Average fell 1.7% for its third consecutive weekly decline. Mid-cap stocks declined 1.7%, and the Russell 2000 fell 1.5%, illustrating the greater sensitivity of smaller companies to higher borrowing costs, as per Bloomberg data.

Markets absorbed the Federal Reserve’s first interest-rate increase since 2023 with relatively limited index-level disruption, but the week reinforced a more demanding investment environment. The Nasdaq Composite gained 0.7%, supported by renewed strength in technology and artificial intelligence-related companies. The S&P 500 was essentially unchanged, declining 0.1%, while the Dow Jones Industrial Average fell 1.7% for its third consecutive weekly decline. Mid-cap stocks declined 1.7%, and the Russell 2000 fell 1.5%, illustrating the greater sensitivity of smaller companies to higher borrowing costs, as per Bloomberg data.

Markets navigated a relatively quiet week, with investors balancing encouraging labor market data against renewed inflation concerns stemming from higher energy prices and rising bond yields. While headline index performance was largely flat, in our view the underlying message from the market remains clear: economic growth appears resilient, but the path of interest rates will likely determine whether equities can extend their advance into year-end. As the Federal Reserve approaches its September meeting, investors are increasingly focused on inflation and bond market dynamics rather than recession risk.

The week’s market narrative was defined by the interaction between accelerating artificial intelligence investment and renewed monetary-policy caution. U.S. equities advanced modestly as strong technology earnings outweighed a more hawkish message from the Federal Reserve. The Nasdaq gained approximately 0.9%, while the S&P 500 and Dow Jones Industrial Average each rose about 0.5%, as per Bloomberg data. Market participation remained uneven, however, with the Russell 2000 declining roughly 1.4% as rising expectations for additional monetary tightening weighed on smaller, more rate-sensitive companies.