Welcome to the monthly market update from Midland Wealth Management. I’m Denise Melton, Portfolio Manager. Today, I’ll share the Investment Team’s latest market and economic views.

THE AI TRADE AND MARKET ROTATION

October marked a meaningful shift in one of the market’s dominant themes this year: Artificial Intelligence (AI).

The month began with renewed optimism as the S&P 500 reached an all-time high. But as earnings season progressed, investors became increasingly focused on a question that has been building throughout 2026: when will record AI spending begin to translate into durable returns?

Several of the largest technology companies disappointed investors as heavy capital spending weighed on free cash flow and raised questions around the payoff from those investments. By month-end, the Nasdaq 100 had fallen sharply from its October peak and finished 6.6% lower.

Importantly, the weakness was not universal. Semiconductor and infrastructure companies continued to report strong demand, particularly in areas such as advanced memory and data center equipment. That reinforced a growing divide between companies supplying the infrastructure behind AI and those being asked to prove that large investments can ultimately generate stronger earnings and cash flow.

MARKET BREADTH

That divergence also created a notable shift in market leadership.

While the technology-heavy Nasdaq struggled, the Dow Jones Industrial Average and the equal-weighted S&P 500 both advanced during October, up 1.76% and 5.0%, respectively. European equities also outperformed as investors rotated toward areas such as healthcare, consumer staples, and other less technology-sensitive sectors.

This is an important change from September. Last month, we highlighted narrowing market breadth, where a small number of large companies were supporting headline index returns. In October, participation improved, but largely because those mega-cap technology companies became a drag.

INTEREST RATES AND THE FEDERAL RESERVE

Interest rates remained another major driver.

The Federal Reserve held rates steady at its October meeting, but the decision carried a hawkish tone. Two policymakers dissented in favor of another quarter-point increase, while several officials continued to emphasize that inflation remains too high.

Markets entered October hoping that softer labor data might allow the Fed to wait longer before raising rates again. A hotter inflation report challenged that view, pushing short-term Treasury yields higher and bringing the possibility of another rate hike back into focus.

The 10-year Treasury yield peaked at roughly 5.31% during the first week of the month, while the 30-year reached approximately 5.67%.

By month end, those yields had fallen back to around 4.94% and 5.31%, respectively. Despite the decline, borrowing costs remain historically elevated as investors continue to weigh the costs of persistent inflation, heavy government borrowing, and whether demand can keep pace with growing Treasury supply.

THE CONSUMER AND INFLATION

Higher rates are also becoming more visible in household sentiment.

The University of Michigan consumer sentiment remained near a 5-month low in October, while year-ahead inflation expectations rose to 4.7%. Consumers continue to cite high prices and borrowing costs as major concerns, particularly for large purchases such as homes, vehicles, and other durable goods.

The contrast remains notable. Broader economic activity has remained relatively resilient, but household confidence continues to lag. That creates a difficult balance for the Fed: growth has not weakened enough to clearly justify easier policy, while inflation remains elevated enough to keep pressure on interest rates.

OUTLOOK

Looking ahead, October reinforced two themes that have shaped markets throughout 2026: higher interest rates and increasing scrutiny around the AI investment cycle.

The difference is that market leadership is beginning to broaden. Technology remains an important long-term driver, but investors are becoming more selective and are rewarding companies that can demonstrate durable earnings, strong cash flow, and clear returns on investment.

With the midterm election, another Federal Reserve meeting, and additional corporate guidance ahead, volatility may remain elevated. We continue to favor diversified portfolios that balance long-term growth opportunities with high-quality income, resilient cash flows, and exposure across a broader range of markets and sectors.

Thank you for joining us for this month’s market update. If you would like to discuss what these developments mean for your portfolio, please reach out to your wealth advisor or relationship manager.