Wall Street has a problem. Actually, problems, plural.
This past week's tech selloff was bad -- the worst since early June. Oil keeps surging, pushed higher by a war that was supposed to end months ago. And the Federal Reserve is prepping everybody for a December rate hike to cool inflation that just keeps getting hotter.
Then there's a little thing on Tuesday: the midterm elections.
We saw it coming in early summer when Treasury bond yields spiked, the ballooning federal debt set a record, and massive spending on AI sent even the biggest of Big Tech companies to tap corporate lending markets.
There was, admittedly, a mid-summer rebound powered the AI trade. It lasted all of two weeks, lifting the S&P 500 to a then-record high of 7798 points, where it essentially settled until mid- October.
But the index never truly broke out of its monthslong funk. And possibly now it's sinking even deeper.
The S&P 500 ended Friday -- and October -- at 7580 points, falling 1.82% on the session, and 0.9% for October, marking its second consecutive monthly decline. It also erased all of its gains for the past five months.
That's a staggering contrast to its 10.7% advance in the first five months of the year, when markets had to wade through the early days of the Iran war -- bringing a surge in global crude -- and the first whispers of doubt about the AI trade.
For the tech sector, it was even worse. The Nasdaq Composite fell 5.3% for the month, pegging the benchmark some 7.8% south of the high it reached on Oct. 6.
And with only two months left before we ring in 2027, and a host of big risks still lurking, the chances of the market staying in the red are high.
All of that, of course, means what happens next is crucial.
November is traditionally the strongest month for stocks -- with a 2.3% gain over the past 100 years. And the market puts in an even better performance in midterm years, with an average advance of 2.7%.
And end-of-year rallies, aka Santa Claus rallies, typically boost stocks across the board. The S&P 500 usually gains 5% from late October through year's end and 6% in election years.
So what is happening? Is there any way to still get a holiday gift?
There are signs investors are rotating cash within the market, which could suggest that the AI investment boom is lifting sectors outside of tech.
In fact, nine of the S&P 500's 11 sectors booked gains in October, led by energy, utilities, and healthcare. That has helped an equal-weighted version of the index climb more than 5%, taking its gains this year to more than 14%.
Tech, though, is staggering. The S&P 500s's sector index is down 6.8% since the end of May, the PHLX Semiconductor Index has fallen 27% from its late June peak, and only two of the Magnificent Seven -- Apple and Microsoft -- have gains over the past two months.
For Edward Jones' Angelo Kourkafas, rotation is a good thing. That and solid economic growth and strong financials from some unlikely players.
"We believe this rotation, which is helping offset some of the weakness in AI-related holdings, is being supported by an economy growing at an above-trend pace, as reflected in third-quarter GDP data, along with improving relative earnings growth from parts of the market that have lagged over the last few years," said Kourkafas, who is a senior global strategist.
David Miller, of Catalyst Funds, sees this downturn as a sort of "reality check" for the AI trade, which has dominated markets for the past four years.
"Investors are no longer willing to reward companies simply for spending billions on artificial intelligence, they increasingly want to see that investment translate into accelerating earnings, expanding margins, and stronger free cash flow," said Miller, who is the firm's chief investment officer.
"This selloff represents a rotation toward quality rather than the end of the bull market," he added. "The next phase of the AI trade will be driven by profits, not promises."
But not all investors are convinced this rotation won't come with a lot more pain -- and wreak a lot more damage to a market that has relied so long on the tech trade.
One is Jonathan Krinksy, chief market technician at BTIG.
"Bulls will say [the rotation] is healthy, and while it has insulated the S&P 500, it also means there aren't many areas of the market that are still oversold," he said. "In fact, many are now extremely overbought."
"The bigger question...is will the weakness in tech spillover to the broad market, or can the game of musical chairs continue?" he added.
Krinsky is sticking with his view that S&P 500 is "vulnerable" and a test of 7306 -- its 200-day moving average -- is coming sooner rather than later.
Outside factors could take it there quickly.
Brent crude futures topped $117 a barrel on Friday, taking its October gain closer to 20%. And President Donald Trump has repeatedly hinted at attacking Iran again once the midterms are over.
But the election results could upset the market even more if there's a blue wave that polls think are possible: Democrats retaking the House and the Senate.
How that would affect the rapid buildout of AI data centers, the war, the pace of government borrowing, or the fate of Trump's tariffs can't be known.
But what is certain is that fixed income investors, as well as equity pros, will be watching with keen interest.
Kriti Gupta, of J.P. Morgan Private Bank, couldn't be more sure.
"In a world where global bond markets are sensitive to growing government deficits, [midterm results] can have long-term consequences on the term premium commanded by investors to hold U.S. government debt," said Gupta, a global investment strategist. "And that can have ripple effects into other financial markets, especially stocks."
Whether that ratchets up into an end-of-year tsunami is still hard to tell, but the risks are indeed real. And building.