The artificial intelligence trade met its first real stress test of the earnings season, and the market flinched. Concerns about how AI infrastructure is being financed, sparked by a sharp selloff in cloud-computing provider CoreWeave, spread through chipmakers and large technology stocks, leaving the S&P 500 down 1.9% and the Nasdaq down 4.5% for their worst weeks since June. The inflation data did not help: consumer prices rose 3.7% from a year earlier in September and producer prices 6.3%, both hotter than expected. Yet Treasury yields fell, with the 10-year dropping to about 5.09% as investors sought safety, and the Dow finished the week higher. Early earnings reports were broadly solid, with 84% of reporting companies beating estimates. Then, after Friday's close, President Trump waived the new Russia sanctions and tariffs that were set to take effect this weekend, a decision markets will price for the first time on Monday.
More Beats, Smaller Margins of Victory
Third quarter reporting season is under way, and the early scorecard is mixed in an instructive way. With 9% of S&P 500 companies reported, 84% have beaten earnings estimates according to FactSet, above the five-year average of 78%. But the size of those beats has been modest: companies are reporting earnings just 2.6% above estimates in aggregate, well below the five-year average of 7.5%. Combined with downward revisions to Health Care estimates, that pulled FactSet's blended growth rate for the quarter to 29.0%, from 29.4% a week earlier and 29.2% at the end of September. Even so, the index remains on track for a third straight quarter of growth above 25%, with revenue growth of 12.6% and ten of eleven sectors expected to grow earnings.
The big banks set the tone. JPMorgan Chase and Bank of America missed headline earnings estimates, but results across the money-center banks were solid underneath, with strong equity trading, accelerating investment banking activity in underwriting and mergers, and net interest income up from a year earlier at JPMorgan, Citigroup, Bank of America, and Wells Fargo. Bank stocks still struggled, and FactSet's growth estimate for the Financials sector held at 3.0%. Valuation offers some cushion: the forward price-to-earnings ratio for the S&P 500 stands at 19.0, slightly below both its five-year average of 19.8 and its ten-year average of 19.1.
The coming week is far heavier, with 79 S&P 500 companies scheduled to report, including five members of the Dow. After a week in which the market questioned the economics of AI spending, results and guidance from technology and industrial bellwethers will carry more weight than usual.
The Neocloud Stress Test
The week's defining selloff began Wednesday in an unusual corner of the market. Shares of CoreWeave, a so-called neocloud that rents out AI computing capacity, fell more than 15% after a chart of the company's finances circulated widely online and focused attention on how heavily it has borrowed to build out data centers. CoreWeave reportedly carries about $50 billion in outstanding obligations. The credit market sent a sharper signal than the stock: yields on its bonds due 2032 rose to about 15.8%, and the cost of insuring its debt against default widened to roughly 11 percentage points a year. Oracle, which has also borrowed heavily to fund data centers, fell 8.8% the same day, and other cloud providers followed.
The worry spread from there. Chipmakers sold off as investors questioned how long the AI buildout boom can last, with Micron and Intel each falling more than 5% on Friday, and the Nasdaq posted its worst week since June. CoreWeave itself rebounded 5% on Thursday after Nvidia's chief executive said its financial health is improving, but the larger question remains. Research firm Gartner expects consolidation among neoclouds, projecting that more than 80% will no longer operate independently by 2030 because of cost pressures, and the International Monetary Fund's October financial stability report named a sharp correction in AI-related stocks as a salient risk.
It is worth keeping this in proportion. The concern is less about whether AI demand is real than about how the buildout is financed and how long the payback takes. Companies funding infrastructure with heavy debt are more exposed to that timing than the large technology firms paying for it from their own cash flow. That distinction showed up clearly in this week's returns, where large-cap growth fell 5.0% while large-cap value rose 0.9%.
Hot Inflation Data, Falling Yields
The inflation reports came in hot. Consumer prices rose 0.6% in September and 3.7% from a year earlier, up from 3.4% in August and above the 3.6% expected, driven by a 9.1% monthly jump in gasoline prices. Core inflation, which excludes food and energy, rose to 2.6% from 2.4%. Thursday's producer price index was hotter still, rising 1.3% for the month and 6.3% from a year earlier, its highest annual rate since December 2022. Retail sales rose 0.8%, well above forecasts, though excluding gas stations they rose only 0.2%, a sign that higher prices rather than stronger demand drove much of the gain.
Rate expectations swung with each release. According to the CME FedWatch Tool, the probability of a rate hike at the October 27 to 28 meeting jumped from 23.8% on Tuesday to 51.5% after the CPI report, then settled back to about one in three after Thursday's data. The bond market, however, moved the other way. After touching 5.33% on Wednesday, the 10-year Treasury yield fell to 5.09% on Thursday, its lowest level in three weeks, as worries about AI spending sent investors toward safer assets. Long-term Treasuries gained 2.7% for the week. Borrowing costs remain elevated for households, with the average 30-year mortgage rate reaching 7.50%, its highest since November 2023.
A Sanctions Waiver Arrives After the Close
Late Friday, President Trump signed an executive order waiving the new sanctions and tariffs required under the Graham Sanctioning Russia and Iran Act, which he signed into law in September. The measures were set to take effect two days later, on October 18. The waiver covers the law's requirement for tariffs of up to 500% on Russian goods, including oil and gas, and tariffs of up to 100% on goods from the five largest buyers of Russian crude and gas, a group that includes major U.S. trading partners such as China and India. Sanctions on Russia imposed under earlier executive orders remain in place. The order follows last week's agreement for Russia to supply diesel to U.S. and global markets.
For markets, the waiver primarily removes a risk rather than adding a benefit. Had the tariffs on major buyers of Russian energy taken effect, they could have disrupted trade with some of the largest economies in the world at a fragile moment. Energy analysts noted that while the waiver may prevent further market disruption, it does not by itself add new oil supply. The decision drew bipartisan criticism in Congress, and Ukraine's president said it seemed wrong, while Russian officials welcomed it. The waiver remains in effect until the administration determines further action is appropriate, which leaves the policy open to change.
Volatility Before the Vote, Historically
Last week we noted that the S&P 500 has risen in the 12 months following every midterm election since 1950. This week offered a reminder of the other half of that history: the weeks before a midterm have often been the bumpiest of the four-year cycle. Since the S&P 500 was created in 1957, the index has experienced an average decline of about 18% from peak to trough at some point during midterm years, with those declines most often arriving in the third or fourth quarter. The Cboe Volatility Index closed Friday above 20, and the S&P 500 sits roughly 2% below the record it set on October 6.
What has typically followed is the encouraging part. According to Carson Research, the six months after a midterm election, November through April, have been the strongest stretch of the presidential cycle, with the S&P 500 gaining an average of about 14%. Measured from the low point of the midterm-year decline, the index has gained roughly 31% over the next 12 months on average. The explanation most often given is the same one we cited last week: once the composition of Congress is known, policy uncertainty narrows and markets tend to respond to the added clarity.
History provides context, not a forecast. This year's market enters the final weeks before the election with earnings growth near 30%, hot inflation data, and a Fed meeting six days before Election Day, a combination with few direct precedents. The practical takeaway is the same: pre-election volatility has historically been a poor reason to change a long-term plan.
Growth Retreats, Value and Bonds Hold
The week's returns split along the line between AI-exposed growth and everything else. Large-cap growth fell 5.0% and mid-cap growth 6.3%, while large-cap value rose 0.9% and mid-cap value 0.6%. The S&P 500 lost 1.9% and small caps 3.0%. Developed international markets rose 1.4%, but emerging markets fell 5.1% as the selloff in semiconductor stocks spread to chip-heavy Asian markets, including a sharp decline in South Korea. Bonds rallied as yields fell, with long-term Treasuries up 2.7%, the broad Aggregate up 0.9%, and municipal bonds up 1.1%. Real estate rose 1.3%, gold slipped 0.7%, the dollar eased 0.3%, and Bitcoin added 0.6%.
| Index | Last Week | YTD 2026 |
|---|---|---|
| Bloomberg US Treasury Bills 1-3 Month | +0.1% | +3.0% |
| Bloomberg US Government/Credit 1-3 Year | +0.2% | +1.1% |
| Bloomberg US Aggregate | +0.9% | -1.6% |
| Bloomberg Municipal 1-15 Year | +1.1% | -1.9% |
| Bloomberg Municipal Bond High Yield | +1.5% | +0.2% |
| Bloomberg US TIPS (Series-L) | +1.1% | -0.7% |
| Bloomberg Global Aggregate | +0.9% | -1.9% |
| Bloomberg US Corporate High Yield | -0.3% | 0.0% |
| ICE US Treasury 20+ Year Index Total Return | +2.7% | -5.0% |
| S&P/TSX North American Preferred Stock Index | -1.5% | +3.7% |
| Bitcoin | +0.6% | -7.4% |
| Invesco DB US Dollar Index Bullish Fund | -0.3% | +7.0% |
| SPDR Gold Shares | -0.7% | -3.6% |
| Index | Last Week | YTD 2026 |
|---|---|---|
| MSCI ACWI IMI Net Total Return | -1.5% | +12.4% |
| MSCI ACWI Net Total Return | -1.6% | +12.5% |
| Russell 3000 Total Return | -2.0% | +12.5% |
| S&P 500 Total Return | -1.9% | +12.9% |
| Russell 1000 Value Total Return | +0.9% | +23.1% |
| Russell 1000 Growth Total Return | -5.0% | +3.1% |
| Russell Midcap Total Return | -1.2% | +13.8% |
| Russell Midcap Value Total Return | +0.6% | +19.0% |
| Russell Midcap Growth Total Return | -6.3% | -1.7% |
| Russell 2000 Total Return | -3.0% | +10.7% |
| Russell 2000 Value Total Return | -1.0% | +16.6% |
| Russell 2000 Growth Total Return | -5.0% | +5.2% |
| MSCI EAFE Net Total Return | +1.4% | +10.2% |
| MSCI Emerging Markets Net Total Return | -5.1% | +17.3% |
| S&P 1500 Real Estate (Sector) Total Return | +1.3% | +7.9% |
Bitcoin weekly return from Bloomberg closing levels of $82,155.54 on October 16, 2026 and $81,685.89 on October 9, 2026. Bitcoin year-to-date return calculated by Vistamark from the October 16, 2026 close and the January 1, 2026 reference price of $88,722. All other figures are total returns through the October 16, 2026 close, sourced from Vistamark Bloomberg internal data systems.
Earnings Take Center Stage Before the Fed
With the Fed's October 27 to 28 meeting a week away and officials entering their quiet period, earnings will drive the market in the days ahead, alongside the first trading reaction to Friday's sanctions waiver.
What It All Means for Investors
This week tested two of the pillars that have supported the market this year. The AI trade met its first serious questions about financing rather than demand, and the inflation data moved firmly in the wrong direction. The result was a week of sharp rotation more than broad retreat: growth stocks and emerging markets fell, while value stocks, international developed markets, real estate, and bonds held up or gained. For diversified portfolios, that is the system working as intended.
Earnings remain strong, with most companies beating estimates and growth still running near 30%. The risks are also real: inflation is reaccelerating with energy prices, the Fed could raise rates again before year-end, and the midterm calendar has historically brought volatility in the weeks before the vote. The common thread is that no single theme, AI included, has carried every corner of the market, and leadership has already rotated more than once this year. Maintaining balance across styles, sizes, and asset classes remains a dependable way to stay invested through weeks like this one.
Diversification for a Rotating Market
When the market's leadership is questioned, portfolios built around a single theme feel it most. VistaBuilder™ constructs allocations designed to hold up across market regimes rather than depend on any one trend, and VistaBalancer™ keeps those allocations on target as leadership rotates. If this week's swings have you reconsidering how concentrated your portfolio has become, we would welcome a conversation.
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Founder and CIO of Vistamark; as CIO of Fiducient Advisors, oversaw investment strategy for more than $260 billion in client assets. More about Matthew →
This article is for informational and educational purposes only and does not constitute investment, legal, tax or accounting advice, or an offer or solicitation to buy or sell any security. Views are those of the author as of the publication date and are subject to change. Vistamark Investments is an SEC-registered investment adviser; see our disclosures.
