Last week was a reminder that even the market’s strongest themes can stumble. The Nasdaq fell 4.5% in the week ending October 16, and the Philadelphia Semiconductor Index fell more than 11%, as investors questioned how the artificial intelligence (AI) build-out will be paid for.^1,2 Yet the Dow Jones Industrial Average rose 0.7%, and the S&P 500 slipped a more modest 1.9%.¹

That gap matters. Seven of the eleven S&P 500 sectors gained ground for the week, led by consumer staples and energy, while technology fell 6.4%.¹ In other words, money was moving between parts of the market rather than leaving it altogether.

After a long stretch of calm and strong gains in AI-related stocks, a sharp week like this can feel unsettling. So what actually happened, and what should long-term investors keep in mind?

What drove last week’s selloff

The week began with a hotter-than-expected inflation report. The consumer price index rose 3.7% from a year earlier in September, and core prices climbed 0.3% for the month,³ above the 0.2% economists expected.⁴ On October 14, the S&P 500 fell more than 1% for the first time in 53 trading sessions, ending its calmest stretch since January 2020, according to Bloomberg.⁵

Attention then turned to how AI infrastructure is financed. Much of the data-center build-out is funded with debt, and higher interest rates raise that cost. On October 15, bonds issued by CoreWeave, a heavily indebted AI data-center operator, yielded about 15.6%, compared with 4.85% on a five-year Treasury, a sign of real nervousness among lenders.⁶ Because AI spending has become so central to the economy, worries about one company spread quickly across the sector.⁶

Later in the week, neutral remarks from Federal Reserve Chair Kevin Warsh cut the market-implied odds of an October rate hike to about 12%,⁷ although a December increase has been widely expected for some time.⁴

Bonds, meanwhile, did their traditional job. The 10-year Treasury yield fell from 5.24% on October 9 to 5.09% on October 16,⁸ and the Bloomberg U.S. Aggregate bond index gained 0.88% for the week.¹

Why a tech pullback weighs on the whole index

Technology and communication services now make up roughly 40% or more of the S&P 500’s market value.⁹ When those stocks fall, the index feels it, even if most other companies are holding up well.

That is what happened on October 16: nine of eleven sectors rose, yet the S&P 500 still ended lower.⁹ For the week as a whole, value stocks gained 0.88%, while growth stocks fell 5.04%.¹

It also helps to separate the long-term AI story from short-term pricing. About two-thirds of S&P 500 companies discuss AI on earnings calls, but only 17% have offered specific evidence of results, and just 2% have quantified the effect on earnings.¹⁰ Adoption is broad, the payoff is still early, and expectations can run ahead of results.

Fundamentals still matter. J.P. Morgan notes that S&P 500 earnings are running about 35% above a year ago, with much of the growth coming from technology, energy and AI-related companies.¹ Several of the largest technology companies report results this week, which may offer more evidence on whether AI spending is translating into profits.⁵

Pullbacks are a normal part of investing

Before mid-October, stocks had been unusually calm, and the S&P 500 then fell more than 1% on both October 14 and October 16.⁵ Even so, the Cboe Volatility Index (VIX), a gauge of expected market swings, stood at 17.85 on October 16. That was above its recent level near 15, but below the readings that typically signal broad market stress.⁹

History shows that declines during the year are common, even in years that end with gains. The chart below compares each year’s largest drop from peak to trough with its full-year return. In most years, the market recovered from those dips and finished higher.¹¹

Past patterns are no promise about the future. Still, they are a useful reminder that a difficult week is rarely, on its own, a reason to change a well-built long-term plan.

Why diversification and rebalancing matter

Last week showed the value of balance. Portfolios concentrated in technology had a hard week, while diversified portfolios were steadier as consumer staples, energy, healthcare and bonds gained ground.^1,9

High-quality bonds have historically tended to cushion portfolios in years when stocks fell, as the chart below shows. That has not held every time; 2022 was a notable exception, when stocks and bonds declined together.¹¹

Strong markets can also quietly change a portfolio’s risk. After several years of gains led by large growth companies, a portfolio that started at 60% stocks and 40% bonds and was never rebalanced would now hold far more in stocks than intended.¹¹

A few general principles can help during periods like this:

• Know what you own. Understand how much of your portfolio depends on a small group of very large companies.
• Rebalance with discipline. Bring allocations back to target on a set schedule or when they drift beyond agreed ranges.
• Separate near-term needs. Money needed in the next year or two belongs in steadier assets, not in the stock market.
• Expect volatility. A plan built around your goals is designed to withstand difficult weeks.

The bottom line? Markets rotate, and leadership can change quickly. A diversified portfolio, rebalanced with discipline and aligned with your financial goals, remains a reliable way to stay on track through periods like this.

References

1. J.P. Morgan Asset Management, Weekly Market Recap, week of October 19, 2026 (data as of October 16, 2026)
2. Reuters, “AI stocks bounce back after bruising selloff, CoreWeave gets Goldman upgrade,” October 19, 2026
3. U.S. Bureau of Labor Statistics, Consumer Price Index – September 2026, released October 14, 2026
4. Steve Sosnick, Interactive Brokers, “CPI Offers an Unpleasant Surprise,” October 14, 2026
5. Bloomberg, Markets Daily, October 19, 2026
6. Steve Sosnick, Interactive Brokers, “Oh, What a Tangled Web We Weave…,” October 15, 2026
7. Jose Torres, Interactive Brokers, “Neutral Warsh, Sinking Yields, Cheaper Oil, Not Enough To Offset Rising AI Pessimism,” October 16, 2026
8. U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates, October 2026
9. Steve Sosnick, Interactive Brokers, “Round and Round She Goes,” October 16, 2026
10. J.P. Morgan Asset Management, On the Minds of Investors, “Are companies benefiting from AI adoption?,” October 16, 2026
11. J.P. Morgan Asset Management, Guide to the Markets – U.S., 4Q 2026 (all charts)

The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. The views and other information provided are subject to change without notice and are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient. Nothing herein should be construed as a recommendation or a solicitation or offer to buy or sell any security. Past performance is not necessarily a guide to future results, and forecasts and estimates are not guarantees. Charts are from J.P. Morgan Asset Management, Guide to the Markets – U.S. (4Q 2026), and are used with credit to J.P. Morgan Asset Management; they are provided for illustrative purposes only. J.P. Morgan Asset Management is not affiliated with NewEra Wealth Advisors or Bolton Global Capital.