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Markets delivered more tricks than treats in October, but beneath the surface, the story was considerably more encouraging than the headline numbers might suggest.
While the S&P 500 declined approximately 0.9% and the technology-heavy Nasdaq fell more than 5%, an impressive 72% of S&P 500 companies actually finished the month higher. This divergence highlights an important development: investors are beginning to look beyond the handful of technology giants that have dominated market performance, with capital rotating into other sectors of the economy. Rather than signalling a broad deterioration in market fundamentals, October's weakness was largely concentrated in areas where expectations had arguably become too optimistic.
Artificial intelligence remains central to this shift. The enormous investment being directed toward AI infrastructure continues, but investors are becoming increasingly selective, demanding greater evidence that these expenditures will ultimately translate into sustainable profits. Meanwhile, corporate earnings remain broadly encouraging, with strength extending beyond the technology sector.
On the economic front, persistent inflation and elevated energy prices continue to complicate the outlook for interest rates. Both the Federal Reserve and Bank of Canada have adopted a more cautious, inflation-focused stance, with markets anticipating additional rate increases. Nevertheless, underlying economic activity remains relatively resilient, providing an important foundation for corporate profitability.
Looking ahead, another significant source of uncertainty is now behind us: the U.S. midterm elections. Historically, the months following midterm elections have been particularly favourable for equities, and we are now entering what has traditionally been the strongest six-month stretch of the calendar year.
The Bottom Line, October was a reminder that markets rarely move in a straight line, but it also revealed some encouraging developments beneath the surface. Improving market breadth, resilient corporate earnings and historically favourable seasonal trends provide reasons for cautious optimism as we approach 2027. Challenges remain, particularly surrounding inflation, interest rates and geopolitical uncertainty, but the broader investment backdrop continues to offer opportunities for patient, diversified investors.
Click the link below to read the full November edition of my Monthly Market Perspectives, where I break down October's market performance, the key developments shaping the investment landscape, and what investors should be watching as we approach year-end.
Thanks as always for reading. AP
