October Market Recap: Mega-Cap Tech Drives Gains as Breadth Narrows and Small Caps Lag

U.S. equities closed October on an upbeat but uneven note, extending the market’s 2025 rally through concentrated gains in mega-cap technology and AI-linked names while mid- and small-cap stocks continued to struggle. The month’s advance reflected a “risk-on but narrow” tone—momentum was strong in the largest and most liquid names, but participation beneath the surface remained limited. Stabilizing Treasury yields and dovish commentary from Federal Reserve officials helped rekindle risk appetite, yet the distribution of gains underscored how dependent the market remains on a handful of growth leaders.

The NASDAQ 100 led major benchmarks with a 4.8% gain, followed closely by the NASDAQ Composite (+4.7%) and S&P 100 (+3.6%). The S&P 500 rose 2.3%, powered by its heaviest components, while equal-weighted and smaller-cap indices lagged noticeably. The Russell 2000 advanced 1.8%, and the S&P 600 actually declined by nearly 1%, signaling continued weakness in domestically focused and rate-sensitive areas of the market. The mid-cap S&P 400 slipped 0.5%, capping a difficult month for companies in the middle of the capitalization spectrum. Breadth readings confirmed the top-heavy dynamic—just over half of NYSE and NASDAQ issues advanced during October, while defensive sectors such as utilities and consumer staples fell sharply.

The market’s tone reflected a continuation of 2025’s dominant theme: concentration in mega-cap growth. Investors continued to favor large, liquid balance sheets and secular growth themes tied to AI infrastructure, cloud computing, and data analytics. Names such as Microsoft, Alphabet, and Amazon remained the primary engines of market strength, while cyclical and value-oriented sectors faded. The S&P 500 Equal Weight Index dropped 2.2% in October even as the market-cap-weighted S&P 500 rose more than 2%, highlighting the stark divergence between leadership and the average stock.

Style and factor performance further reinforced the narrative. Growth and momentum factors posted strong monthly gains—up 7% and 4% respectively—while value and low-volatility strategies underperformed. Quality factors held up best among defensives, a sign that investors sought balance-sheet stability rather than pure risk aversion. In contrast, yield and income-oriented strategies lagged, consistent with a market leaning toward offense as yields steadied.

Sector rotation was equally lopsided. Technology led with a 6.7% surge, driven by strength across semiconductors, software, and cloud infrastructure. Health care followed with a 3.7% gain, providing a blend of defensiveness and earnings durability as investors positioned for late-cycle stability. Utilities rose 2.2% amid a retreat in yields, while industrials added 0.5%, supported by infrastructure and aerospace demand. On the downside, materials fell 4.4%, communication services lost 3%, and real estate slipped 2.9%. Energy also weakened (-1.4%) as crude oil prices retreated and refining margins compressed. Consumer staples and financials declined by nearly 3%, reflecting margin pressure and lingering sensitivity to funding costs.

Momentum data supported a technically bullish but maturing market structure. Approximately 35–40% of stocks traded above their 20- and 50-day moving averages, pointing to short-term fatigue following earlier strength. However, roughly 55–60% remained above their 200-day averages, confirming that the long-term uptrend remains intact. This pattern—a wide gap between long-term and short-term participation—suggests a consolidation phase rather than the start of a correction. The Keller Market Model echoed that message, showing aligned medium- and long-term uptrends across all major U.S. indices, though mid-caps displayed a short-term downtrend indicative of internal rotation.

Sector-level breadth data also painted a rotational picture. The Bullish Percent Index (BPI) showed only one sector—utilities—above 70%, while technology, health care, and industrials held solidly in the 60% range. Energy and gold miners hovered near 55%, while consumer staples languished below 20%. This configuration implies a late-cycle tone: the broader trend remains positive, but leadership is concentrated and selective. Strength in utilities likely reflects yield stabilization rather than a true defensive rotation, whereas weakness in consumer sectors hints at cautious household demand and profit margin compression.

Cross-asset performance added nuance to the October story. Cryptocurrencies reversed sharply, with Bitcoin falling 11.9% and Ethereum down 17.8% as speculative flows faded and liquidity tightened. Commodities were mixed—the CRB Index gained 0.6%, while crude oil slipped 2.4%. Natural gas prices spiked 24.6% on weather-driven demand, and precious metals rallied, with gold up 3.6% and silver up 4.3%. The U.S. dollar strengthened 2.3%, tempering commodity gains but reinforcing confidence in U.S. growth and yield stability.

In total, October’s market behavior signaled a continuation of 2025’s defining trends: leadership anchored in mega-cap technology, selective strength in growth and quality, and persistent underperformance in smaller-cap and value segments. The combination of strong long-term technicals and narrow short-term participation leaves the market in a balancing act—bullish, but fragile. Investors appear to be doubling down on liquidity, innovation, and earnings visibility while rotating away from rate-sensitive areas.

Looking ahead, the key question for November and beyond is whether breadth can expand meaningfully. If mid- and small-caps begin to participate and cyclicals stabilize, the market could transition into a more durable, broad-based advance. Absent that, leadership will likely remain concentrated at the top—a dynamic that has worked all year but grows riskier the longer it persists. For now, the October picture is clear: the bulls are still in control, but the rally’s foundation rests squarely on the shoulders of a few giants.