October 24, 2026 | Unsubscribe
Good Morning!
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Now let’s break down what actually moved markets this past week and what to watch next.
Market Recap
This week was mixed on the surface but quietly good for smaller companies. The S&P 500 and Nasdaq each slipped less than 1% and the Dow edged higher. The Russell 2000 gained about 2%, and the 10-year Treasury yield fell back below 5% for the first time in weeks. Two themes dominated: a renewed spike in oil and growing doubts about the cost of the AI buildout.
The biggest story was oil. Escalating tensions in the Middle East, including new attacks on Saudi oil infrastructure, sent prices sharply higher. U.S. crude moved back above $100 a barrel and the international benchmark climbed above $110, a five-month high. That is a serious concern for inflation, which was already moving the wrong way after last week’s hot consumer price report. Higher fuel costs feed into everything from shipping to airfares to retail prices, and they come just days before the Fed meets.
The second theme was AI spending. Several large technology companies reported solid earnings, but investors focused on how much they are spending on data centers and how that spending is being financed. One major tech company fell sharply despite beating expectations after reporting its first quarterly cash outflow in over a decade. Thursday brought the Nasdaq’s worst day since June, and chip stocks extended their losing streak. The market is no longer willing to reward AI spending on faith; it wants to see the returns.
That is where the good news for small caps comes in. On the same day the Nasdaq fell hard, the equal-weighted S&P 500, which gives the average stock the same weight as the giants, actually rose. Money continues to rotate out of crowded mega-cap tech and into the rest of the market. At the same time, Treasury yields fell for a third straight week as investors moved into bonds. Lower yields and a broadening market are exactly what smaller companies need, and it showed in this week’s small cap outperformance.
Households remain under pressure. Consumer sentiment held near record lows in October, with inflation worries edging higher as gas prices climb again. Business activity, however, has held up well, so the economy is still growing even as consumers feel squeezed.
What’s Coming Next Week
This is one of the most important weeks of the fall. The Fed announces its rate decision on Wednesday. Markets widely expect it to hold steady after September’s hike, but with oil back above $100 and inflation rising, investors will be listening closely to Chair Warsh’s tone on whether another hike in December is likely. A hawkish message would likely push yields back up and pressure small caps. A patient one would extend the recent relief in yields.
On Thursday, the first estimate of third-quarter economic growth and the September reading of the Fed’s preferred inflation gauge arrive on the same day, giving a combined look at growth and prices just after the Fed decision. Earnings season also continues at full speed, and the debate over AI spending will stay front and center.
Above all, watch oil. It is now the main driver of inflation expectations, yields, and the Fed’s path.
The bottom line: tech is struggling, oil is climbing, and the Fed meets next week. But falling yields and a broadening market gave small caps their best relative week in some time. If the Fed stays patient and oil stabilizes, that rotation has room to continue.
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SmallCapStocks Team
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