Equal Weight Leads as AI Funding Faces a Test. Can the Broadening Hold as Conditions Tighten?

Equal Weight Outpaces the S&P 500 as Mega-Cap Tech Slides

Amid heightened scrutiny over AI spending, renewed energy price pressure tied to the Iran conflict, and a cautious market response to mega-cap earnings, equities were mixed in October, with the Nasdaq-100 declining 6.7% for its worst month since March 2025. Although the S&P 500 finished the month down 0.9% after erasing its gain in the final session, the S&P 500 Equal Weight Index gained 4.9%, outperforming its market-cap-weighted counterpart by nearly six percentage points, its widest monthly margin since 2009. US value (4.9%) led, followed by US small-caps (3.2%) and US mid-caps (1.9%), while broad-based emerging markets (-6.4%) and US growth (-5.4%) lagged. Bonds were up as municipal bonds rose 3.3%, 7-10 year US Treasuries gained 3.1%, and Treasury Inflation Protected Notes increased 2.6%. Aside from crude oil (15.9%), commodities declined as silver fell 18.2%, gold decreased 6.6%, and broad-based commodities slipped 0.5%.

See more: AI Spending Scrutiny Deepens as Markets Rotate Beyond Tech

Fed Holds as Warsh Trims the Rate-Setting Calendar

The Federal Reserve held the federal funds rate steady at the October FOMC meeting in a 10–2 vote, keeping the target range at 3.75–4.00%. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented, both favoring an immediate 25 bps hike. The decision followed September’s quarter-point hike and a firmer-than-expected September CPI report, which rose 0.6% month-over-month and lifted headline inflation to 3.7% year-over-year. The statement’s most notable change was its description of the economy, upgraded from “solid” to “strong,” as it now reads “economic activity is expanding at a strong pace.” Chair Warsh pointed to first-half GDP growth being revised up to 2.4% from 1.8% and noted that third-quarter growth appears even faster, while acknowledging that “inflation remains elevated” and that “energy and related prices have moved higher again in recent weeks.” Warsh also announced that, beginning in 2027, one of the FOMC’s eight meetings will focus solely on long-run strategy, with no rate vote or statement, expanding to two meetings in 2028. With fewer decision points and no forward guidance, each remaining meeting carries more weight. Looking ahead, the CME FedWatch Tool now implies roughly 83% probability of a 25 bps rate hike at the next FOMC meeting in December.