Top-3 Takeaways After October Leads to Market Correction

The trading month of October ended on a quite sour note on Friday.

The NASDAQ dropped by nearly 3%, bumping its loss for the month to 5.3%, the tech-heavy index’s worst monthly performance since March 2025. The S&P 500 fell just over 1.8% on Friday, taking the index from a slight gain for the month to a 1.7% loss for October. The Dow was off 1.1% but still managed to end the month .9% in the black.

This points to the sector rotation investors saw during the month. Still, we appear to have a stealth correction unfolding as roughly 60% of the 500 components in the S&P are 20% or more lower from their 52-week highs. Sector rotation was just one of the themes that emerged last month. Below are a few other themes I saw emerging in October.

Interest Rate Volatility

The yield on both the 10-year and 30-year treasury bonds hit their highest levels since 2022 early in October. Yields pulled back significantly late in the month, however. The 10-year treasury ended the month yielding just over 4.93%. This was even as inflation remains far above the central bank’s 2% target and an initial reading of Q3 GDP growth that came in at 3.4%, which was hotter than expected.

In France, sovereign debt commanded the highest yield in more than two decades as the nation’s GDP to debt ratio has risen to roughly 120%, economic growth is tepid, fiscal deficit spending is north of 5% of GDP and riots/protest swept over the nation. France is now paying a higher price to service its debt than former credit pariah Greece. And the divergence between French and German debt is at its highest spread since the Greek Debt Crisis. Fitch Ratings cut its outlook on French sovereign debt last week as well.

Free Cash Flow Matters Again

Free cash flow has been plummeting at the hyperscalers, even as revenue growth has remained impressive over the past few quarters. Investors were largely content to give these names a pass as their cash burn increased. Not this quarter.

Both Amazon (AMZN) and Alphabet (GOOG) were taken to the woodshed last week after posting third quarter numbers that showed free cash flowing plunging into even more negative territory. Amazon posted negative free cash flow of north of $40 billion for Q3. This was multiple times expectations. The credit markets have been signaling increasing stress on this front for most of 2026 with rising yields demanded for new debt and surging credit default swap prices throughout the AI ecosystem. Equity investors look like they are finally factoring in this concerning trend.

AI Increasingly Impacts Employment Picture

Microsoft (MSFT) is the only major hyperscaler still producing positive free cash flow. Albeit it dropped by more than 25% from the same period a year within Mr. Softie’s just reported quarter. Microsoft went back to the debt markets last week with $25 billion bond deal. The company also just announced they will offer just over a quarter of its workforce, or some 60,000 employees, voluntary buyout offers. Over the longer term, that should free up considerable free cash flow to continue to feed its burgeoning AI infrastructure capex budgets. If one third of Microsoft’s staff take their severance packages offered, it will roughly match the number of employees Oracle (ORCL) has let go of in 2026.

And that is the last trend that seems to be emerging. Both American Express (AXP) and Barclays PLC (BCS) announced they are laying off five percent of their staffs with their recent quarterly results. Both firms cited AI as the primary factor. I expect more of these types of announcements as we get deeper in third quarter earnings season.

Unrest in Europe spread to Germany over the weekend. Midterms are Tuesday, which is likely to be soon followed by escalation of hostilities in the Middle East, though there appears to some more recent hopium on the latter item.

NVIDIA Corporation (NVDA) will post critical results on November 17.  So, another eventful month has begun.

At the time of publication, Jensen was long AMZN.