AI Spending Doubts And Rising Oil Cool The Rally

Market Commentary – October 26, 2026

Equity prices cooled last week as doubts about returns on artificial intelligence (AI) capital spending coincided with a sharp rise in oil prices.

The Nasdaq suffered the steepest decline on the AI concerns, while Energy stocks led the market as crude rose amid a record monthly tally of attacks on commercial ships near the Strait of Hormuz. Rising energy costs, particularly diesel fuel prices, kept inflation risks and bond yields in focus.

The Federal Open Market Committee (FOMC) announces its interest rate decision on Wednesday, followed Thursday morning by the release of the Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s (Fed) preferred inflation gauge. The Fed is expected to hold rates steady, with the market focused on Fed Chair Kevin Warsh’s comments at the post-meeting press conference.

Stocks Cool As AI Doubts Return

Technology stocks came under pressure last week after Meta (META) reported solid revenue and earnings but reaffirmed its plans for heavy AI investment. That spending pushed its free cash flow into negative territory for the first time since at least Q4 2021, according to Bloomberg. Research firm Gartner (IT) added to market concerns, warning that projected AI revenue falls well short of the capital needed to build out data centers. Credit spreads — the additional yield corporate bonds offer over comparable Treasuries — widened for select frontier AI borrowers, signaling greater concern about credit risk.

For now, we do not expect this spread-widening to significantly disrupt markets or slow data center construction. Remember: there was a time when cell tower construction also faced skepticism and resistance, yet the cell towers were built. We expect data centers to follow a similar path.