The October 2026 market update came down to a split: the Nasdaq fell 5.3% on questions about AI spending, while the Dow rose 1.7% and bonds gained. The Federal Reserve held rates in a 10 to 2 vote, with two officials favoring an increase. Third-quarter GDP grew at a 3.4% annual rate.
Two investors could have looked at their October statements and come away with very different impressions of the market. The Nasdaq fell 5.3%, the Dow rose 1.7%, and investment-grade bonds gained 2.4%. What mattered wasn’t simply what the market did. It was how their money was invested.
Behind those numbers were three questions investors are still trying to answer. Will the money going into artificial intelligence earn a return? How will higher energy prices shape what the Federal Reserve does next? Can consumers and businesses keep spending?
These concerns have been with us all year, but October showed how differently markets can react to them. This update covers what happened in October, what the data shows, and what it may mean for your plan.
Key Data Points From October
- Year to date through October, the S&P 500 is up 10.7%, the Nasdaq 9.4%, and the Dow 7.7%, even after October’s swings.
- The 10-year Treasury yield ended the month at 4.93%, below 5%.
- Brent crude closed the month near $118 per barrel.
- The Federal Reserve held its target range at 3.75% to 4.00%, and two officials preferred a quarter-point increase.
- The CBOE VIX, a measure of expected stock market swings, ended the month at 19.4.
October 2026 Returns by Asset Class
Percent, October 2026.
Source: Clearnomics. The MSCI EAFE return is in U.S. dollar terms. Indices are unmanaged and cannot be invested in directly. Past performance is not indicative of future results.
Why Technology Stocks Stumbled on AI Spending
Investors are starting to ask a harder question about artificial intelligence: will all this spending pay off? Companies are spending enormous amounts on data centers, computer chips, and the electricity needed to run them. Several big technology companies have reported negative free cash flow in recent periods, including Amazon for the twelve months ended September 30. Free cash flow is the cash a company has left after paying to run and expand its business.
Investors aren’t necessarily questioning whether artificial intelligence will change the economy. They’re questioning whether the companies spending billions to build it will earn enough to justify the investment. Those are two very different questions.
October showed how much one theme can move a portfolio in a single month. If a large share of your portfolio sits in a handful of technology companies, October’s gap between the Nasdaq and the Dow is worth a closer look. Diversification cannot prevent losses, but it may reduce how much your portfolio depends on any one part of the market.
That spending also creates business for construction companies, electricity providers, and equipment manufacturers, and corporate earnings have been growing. Even so, investors are paying less for each dollar of expected profit than they were a year ago. The forward price-to-earnings ratio for the S&P 500, which compares the index price with expected earnings over the next year, was roughly 19 at the end of October, down from a high of roughly 23 about a year ago, according to Clearnomics. Methods differ by data provider, so treat these as approximate. That lower multiple is part of why investors are weighing technology stocks more carefully.
U.S. Stock Indices, October and Year to Date
Percent, through October 2026.
Source: Clearnomics, S&P, Dow Jones. Indices are unmanaged and cannot be invested in directly. Past performance is not indicative of future results.
Technology stocks also respond to interest rates. Much of their value depends on profits investors expect years from now. When interest rates rise, investors generally place less value on those future profits.
Oil and Inflation Pushed the Fed Into a Hawkish Hold
Energy prices rose sharply in October as tensions in the Middle East intensified. According to Clearnomics, attacks on commercial ships near the Strait of Hormuz and on Saudi Arabian energy infrastructure added to supply concerns. Brent crude, the global benchmark, ended the month near $118 per barrel.
Inflation remains above the Fed’s 2% target. The personal consumption expenditures (PCE) price index rose 0.5% in September and 3.6% from a year earlier. Core PCE, which leaves out food and energy, rose 0.3% for the month and 3.1% for the year.
Inflation Measures, September 2026
Percent change from a year earlier.
Source: Bureau of Economic Analysis, Federal Reserve. PCE is the personal consumption expenditures price index. Core PCE excludes food and energy.
On paper, the Fed did nothing in October. The vote said more than the decision. It left its target range at 3.75% to 4.00%. Analysts called it a hawkish hold, which means leaving rates alone while some officials signal that higher rates may still be needed. The vote was 10 to 2, and the two dissenters wanted to raise rates by a quarter point. The Fed’s statement described economic activity as expanding at a strong pace.
As of the end of October, futures markets pointed toward a possible increase at the last meeting of the year, according to Clearnomics, citing the CME FedWatch tool. Expectations like these can change quickly as new economic data arrive. If you hold cash or bonds to fund spending, rate moves affect what that money can earn, which is one reason the Fed matters to your plan.
The Economy Grew at a 3.4% Pace While Households Stayed Gloomy
The Bureau of Economic Analysis’ initial estimate showed real GDP growing at a 3.4% annual rate in the third quarter. Consumer spending, business investment, and government spending all increased. Net exports subtracted from growth because imports outpaced exports.
The AI buildout shows up in those numbers. Business investment rose in part because of data center construction and equipment. Imports of semiconductor hardware also rose, which likely helps explain why trade held growth back.
The economy looks stronger on paper than many households feel. Many remain concerned about prices and job security. Spending has stayed firm anyway. Low unemployment and rising stock prices may be helping.
Growth is strong, and earnings are rising, while inflation stays above target because of energy prices. For your plan, the useful takeaway is that a strong economy and a rough month for stocks can happen together. Earnings matter over time, but even strong profits cannot keep stocks from falling when investors become worried about what comes next.
What This Means for Your Plan
October is a good reminder to look at what you own and why you own it. Three questions are worth asking.
- How much of what you own depends on one theme? If technology and AI make up a large share of your holdings, the Nasdaq’s 5.3% drop shows how much that can move your results in a single month.
- If you need money from your portfolio next year, where will it come from? If you will need cash in the next several years, it matters which account you would draw from after a decline, and what selling would cost in taxes.
- Are today’s bond yields changing how you think about retirement income? With the 10-year Treasury at 4.93%, bonds may pay more income than they did a few years ago, though bond prices can still fall if rates rise.
These questions connect. Your answer on spending affects how much risk makes sense, and your answer on risk affects taxes. That is why we treat retirement planning and investment management as parts of one conversation.
Frequently Asked Questions
Why did technology stocks fall in October 2026?
The Nasdaq fell 5.3% as investors questioned whether heavy AI spending will earn enough to justify its cost. Several large technology companies have reported negative free cash flow in recent periods as data center and chip spending has grown. Technology stocks also tend to be sensitive to interest rates, so changes in Treasury yields and Federal Reserve policy can move them as well.
What is a hawkish hold?
A hawkish hold is a decision to leave interest rates unchanged while some officials signal that higher rates may still be needed. The Fed held its target range at 3.75% to 4.00% in October. Two of the twelve voting officials preferred a quarter-point increase, which is why many observers used the term.
Will the Federal Reserve raise rates again in 2026?
No one can say for certain. Inflation remains above the Fed’s 2% target, and futures markets pointed toward a possible increase at the last meeting of the year. Rate expectations can change quickly with new inflation and jobs data, so they are best treated as possibilities.
Is the economy strong even though many households feel uneasy?
Both can be true at once. Real GDP grew at a 3.4% annual rate in the third quarter, according to the Bureau of Economic Analysis. At the same time, many households say they are worried about inflation and the job market. Strong growth does not remove those worries, and those worries do not guarantee growth will slow.
How do higher oil prices affect my retirement plan?
Higher energy prices can push inflation up, and inflation raises what your spending costs over time. The PCE price index rose 3.6% in the year through September. Testing how different inflation paths may affect your income and savings is part of financial planning, and it matters more as retirement gets closer.
Should I sell after a month like October?
That depends on your plan and your time horizon. Selling after a decline can lock in losses and may trigger taxes, while holding keeps you exposed if prices fall further. The question to ask is whether your investments still match your time horizon and the cash you will need soon.
The bottom line: October didn’t change the purpose of your investments. What matters is whether your portfolio continues to support your financial goals, regardless of what the market does in any given month.
Sources: Clearnomics; S&P; MSCI; Bloomberg; Federal Reserve Board, FOMC statement of October 28, 2026; Amazon.com, Inc., third quarter 2026 results release of October 29, 2026; Bureau of Economic Analysis, GDP advance estimate for the third quarter of 2026 and Personal Income and Outlays, September 2026.
M. Chad Holland, CFA, CFP®, is Managing Director of Holland Capital Management, LLC.
