Altseason’s final lap: ex-AI’s record S&P gap awaits Fed and Big Tech

The S&P 500 without AI stocks has beaten the full index by 6.4 percentage points in October, putting the gap on pace for a record month as two events this week could decide it. The swing came one month after ex-AI stocks trailed by 5.1 points, while July’s previous monthly record of 3.6 points became a 5.1-point deficit within two months. AI-linked firms make up about 45% of the S&P 500, a weight that became a drag this month.

Most of the lead built up over the past three weeks, when ex-AI stocks outperformed by 7.4 points. Bloomberg data shared by The Kobeissi Letter shows no wider three-week spread on record. The accompanying X/The Kobeissi Letter chart tracks the S&P 500 ex-AI vs. S&P 500 monthly return difference from 2022 to October 2026. Leadership has changed hands often, with ex-AI stocks winning 4 months of 2026 and the full index 6.

Worries over AI spending and rising financing costs began dragging AI stocks down this month. A hot inflation report on October 14 added to the pressure by reviving bets on another Federal Reserve rate hike. Higher rates would make debt-funded AI spending more expensive. Chipmakers took the heaviest losses, with the Philadelphia Semiconductor Index falling for eight straight sessions, the longest losing streak since 2008. Money leaving chips moved into energy and consumer staples, which each gained double digits in October through October 22, according to CNBC data; the rotation briefly erased the gap AI stocks had built over 2026.

The record has three sessions to survive. Markets have priced in a pause for the Federal Reserve’s rate decision today, with CME FedWatch showing about a 90% chance of a hold. Attention then shifts to December, when futures traders see roughly a 75% chance of another hike. Microsoft and Alphabet earnings this week are the other test.

Meta shares fell more than 9% last week after the company reported its first negative free cash flow. Evercore analyst Mark Mahaney flagged that this week’s hyperscaler reports could lift capital spending by up to $100 billion. The AI trade has already started recovering, with the semiconductor index gaining about 7% over three sessions through October 27. The two events could ease or deepen doubts about AI spending, deciding whether October’s lead holds.