A week shaken by AI doubts and oil; now the Fed and big tech

Monday morning, so here's the week in review and a look ahead. Last week U.S. stocks were rattled by doubts about whether AI spending really pays. The Nasdaq 100 slid to about 8% below its high, the lowest since mid-September, and the S&P 500 lost 0.5% on the week. The selling was concentrated in big growth and AI names while defensives and value held up better.

The sharpest point in the AI debate was how lopsided the gains are. Apollo said the AI boom's benefits have gone only to tech companies, and the Wall Street Journal noted that ten companies, including Nvidia and Micron, account for roughly two-thirds of earnings growth. Meta's capex rose 80% and its free cash flow turned negative, and on Thursday global hedge funds suffered their broadest one-day loss since the pandemic.

Rates and energy weren't friendlier. WTI topped $117 on Friday, back to its Iran-war high, and the Dow fell 1.25%. Ship attacks in the Strait of Hormuz hit a record in October. Michigan consumer sentiment stayed near record lows at 48, yet business-activity PMIs are at five-year highs, a sign that the economy is running hot while prices can rise with it.

Three things to watch this week. The Fed meets on Wednesday and is likely to hold, with attention on a possible December hike. Big-tech earnings, including Alphabet and Amazon, keep rolling in, and the midterm elections are next Tuesday. History offers some comfort, as the S&P 500 was higher 12 months after all 18 midterms since 1954, but with all three hurdles stacked together, the market is holding its breath.