Session date: Wednesday, 27 Oct 2026 | Presenter: Li Chye, Senior Financial Analyst & Coach, Beyond Insights

TL;DR: The October pullback in US tech stocks came from three pressures at once: oil-led inflation, a likely Fed hike in December and fresh doubts about AI spending. In our October Market Update, Li Chye explained why he still sees the wider AI cycle as intact, and why managing risk comes first in a week packed with market-moving events.

Key takeaways

• Inflation is sticky and oil-led. US consumer prices rose 3.7% in the year to September, up from 3.4% in August, with energy doing much of the lifting.
• The market expects one more Fed hike, not a series. Futures put the odds of a December hike at around 76%, but only 29,000 jobs were added in September.
• AI demand still runs ahead of supply. S&P 500 earnings are on track for about 29% growth this quarter, the third straight quarter above 25%.

https://youtu.be/xWXl2t4-JKA

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What is driving the US stock market right now?

Why is US inflation rising again?

US inflation is rising mainly because oil prices remain high. Consumer prices rose 3.7% in the year to September, faster than the 3.6% economists expected (Reuters via Qatar Tribune, 14 October 2026). Producer prices, which track what factories charge and often lead consumer prices, rose 6.3% (US Bureau of Labor Statistics, 15 October 2026).

Li Chye traced the pressure to the Middle East. The Strait of Hormuz remains close to shut, and Yemen's Houthis have been striking Saudi energy facilities and tankers. Brent crude pushed close to US$113 a barrel on 22 October after another round of attacks (Maritime Executive, October 2026). The Ukraine-Russia war adds to it, with Ukrainian strikes on Russian oil facilities lifting diesel prices.

He also noted that higher energy costs are starting to pass through to services and factory goods. Unless the war de-escalates, he expects inflation to stay elevated for a while.

What is the Fed expected to do next?

The market expects the Fed to hold rates this week and raise them once more in December. The Fed last raised rates on 16 September, to a target range of 3.75% to 4.00% (Federal Reserve, 16 September 2026). The decision lands at 2.00am Malaysia time on 29 October. As of 23 October, futures priced the odds of a December hike at around 76%, with the 10-year Treasury yield sitting at about 5% (Trading Economics, 23 October 2026).

Why only one hike? The Fed has two jobs: keep prices stable and support maximum employment. Inflation argues for tighter policy, but the job market argues the other way. The US added just 29,000 jobs in September, against an average of 45,000 a month over the prior year (US Bureau of Labor Statistics, October 2026). Li Chye's read is that the Fed may not be too aggressive, though new data could change that quickly.

How could the US midterm election affect stocks?

The midterm election on 3 November is likely to move markets in the short term. Li Chye pointed out that, based on seasonal patterns, markets have more often been bullish after midterms, including a year later.

The more volatile outcome, in his view, would be Republicans losing both the House and the Senate. That could slow some of the policies the current administration supports, including data centre expansion, which some politicians have opposed.

Signal or noise: what is behind the AI stock pullback?

Why did semiconductor stocks fall?

Semiconductor stocks fell because two earnings reports raised doubts about future AI spending. Tesla cut its 2026 capital spending forecast to about US$20 billion. Meta raised its spending plans, but its free cash flow turned negative for the first time since it listed in 2012 (FXStreet, 22 October 2026).

Investors began to ask whether that pace of spending can last. Several chip stocks broke important support levels, while others pulled back to strong ones. Li Chye's advice was to let those support levels be tested before making any decision. At the time of the session, the semiconductor sector had rebounded near a key support level and the Nasdaq 100 was testing its own.

Is AI demand actually slowing?

The hardware results suggest demand is still strong. TSMC, ASML, Texas Instruments and Western Digital all reported results in line with or above expectations, and several said demand is outpacing supply. Li Chye also pointed to comments that Amazon Web Services capacity is sold out through 2027.

He described the current stage as a move from AI training, to inference (people using chatbots), to AI agents that act on a user's behalf. Agents multiply demand for computing power, memory and networking. Physical AI, such as robotics, may follow. The key test comes this week, with Google and Microsoft reporting on 29 October and Amazon on 30 October, Malaysia time. Their spending guidance could steady chip stocks or add to the volatility.

Where is money rotating to?

Money has been moving into consumer staples, healthcare and utilities, a sign the market is still cautious. Cybersecurity has also gained, as AI-discovered website flaws and AI-powered attacks push companies and governments to spend more on protection.

Li Chye called cybersecurity a double-edged sword. Demand is rising, but a single successful hack can create damaging headlines and a sharp sell-off. Memory stocks also came under pressure after China's CXMT claimed a new memory design that outperforms SK Hynix.

What does this mean for Malaysian investors?

The US remains the most consistent of the four markets Li Chye compared, because it has the most high-growth, highly profitable companies.

Market	What Li Chye sees	Main driver
United States	Strong earnings; recent fall looks like a dip in a longer uptrend	AI and corporate spending
China	Slow growth, weak retail sales, inflation below 1%, property slump in its fourth year	Exports, especially EVs; minimal stimulus
Hong Kong	Turned into a downtrend	Capital moving back to the mainland; an AI IPO boom draining funds
Malaysia	Broadly flat over 10 years, with selective rallies	Data centres in Johor, construction, utilities and solar

Source: Beyond Insights Market Update, 27 October 2026.

Why does the US remain the most consistent performer?

US companies are still growing earnings fast. S&P 500 earnings are on track for about 29% growth in the third quarter, the third straight quarter above 25% (FactSet, 16 October 2026). Many of the world's best-known brands, such as Nvidia, Microsoft, Google and Amazon, are listed there and remain highly profitable despite their size.

Li Chye also noted that consumer spending is holding up overall, though it has shifted by income group. Lower-income households are spending less, while middle and higher-income groups are still spending.

The bottom line: The US pullback looks like a reaction to macro uncertainty, not a collapse in company fundamentals.

Why is so much cash sitting on the sidelines?

Investors are parking cash where it earns a high, low-risk return. US money market funds, which work much like a fixed deposit for large investors, held about US$7.9 trillion in September, close to a record (First Trust, citing Investment Company Institute data, 22 September 2026).

With the Fed's target rate at 3.75% to 4.00%, cash pays a solid return without taking on stock market risk. That cash could move back into stocks if inflation, unemployment or the Fed's direction change. Li Chye also flagged a possible shift into bonds: with yields around 5%, some pension funds may sell dividend stocks yielding 2% to 3% and buy Treasuries instead.

The bottom line: A large pool of waiting cash is a sign of caution, and also a potential source of future buying.

What risks and opportunities is Li Chye watching?

Li Chye always starts with risk. These are the risks he flagged for the coming month:

• Geopolitical tension. Houthi attacks on Saudi facilities and the Ukraine-Russia war keep oil and diesel prices high, and the conflict could escalate again after the midterms.
• The midterm outcome. A split government could bring short-term volatility, especially for data centre stocks.
• Sticky inflation. Higher rates for longer raise borrowing costs. Smaller AI companies that fund expansion through loans and bonds would feel this most.
• Doubts over AI spending. Tesla's spending cut and Meta's negative cash flow have made investors more sceptical.
• AI agent disruption. Agents that hunt for the best deals could hurt companies that profit from customer inertia, such as banks, insurers, travel sites and gyms.

And the opportunities he is watching:

• The AI cycle is still intact. Infrastructure is still behind demand, even if power or memory shortages cause temporary slowdowns.
• Quality stocks are testing key support. Some strong semiconductor and AI companies are near important levels and reasonable valuations.
• Cybersecurity demand. Spending looks set to become essential, though risk management matters here.
• Trading-focused brokers. Higher rates lift margin income, and looser rules on tokenised stocks may support trading activity.
• Future themes. Robotics, autonomous driving, satellite communications and large chip-making projects are emerging areas that need careful research.

How is Li Chye approaching this market himself?

Li Chye shared his own process, as a reference only. For long-term investments, he watches strong weekly support levels, such as the 50-week and 200-week moving averages, and works out valuations in advance. For swing and trend trades, he waits for a confirmed trend reversal. While uncertainty is this high, he is mostly trading intraday to avoid overnight risk.

That order reflects how we teach at Beyond Insights. In our STPM framework (Select, Time, Protect, Multiply), Protect means sizing positions sensibly, using stop losses and honouring them when a key level breaks. In a week this eventful, that step matters more than any single forecast.

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Want to Learn How to Read These Signals Yourself?

The frameworks Li Chye uses in these sessions - reading Fed policy shifts, identifying structural industry cycles, managing risk across volatile macro conditions, are what we teach at Beyond Insights.

Our free 3-hour webinar walks through a systematic approach to global investing and trading, built around the S.V.S. framework: Systematic, Versatile, and Safe.

If you are navigating this market and want a clearer way to think about it, register for the next free webinar below.

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Frequently asked questions

What was US inflation in September 2026? US consumer prices rose 3.7% in the year to September 2026, up from 3.4% in August and above the 3.6% economists expected. Much of the increase came from energy, as high oil prices linked to the Middle East conflict pushed up petrol and diesel costs. Producer prices rose 6.3% over the same period.

When is the Fed's October 2026 rate decision? The Federal Reserve announces its decision at 2.00pm US Eastern time on 28 October 2026, which is 2.00am on 29 October in Malaysia. As of 23 October, futures markets expected the Fed to hold rates at this meeting, with around 76% odds of a quarter-point hike in December.

Why did AI and semiconductor stocks fall in October 2026? They fell mainly on doubts about future AI spending. Tesla cut its 2026 capital spending forecast, and Meta's free cash flow turned negative even as it raised its spending plans. Investors started to question whether Big Tech can sustain the pace, even though chipmakers such as TSMC and ASML reported demand running ahead of supply.

Is the AI boom over? Li Chye's view is that the wider AI cycle is still intact. He sees the industry moving from training models, to people using chatbots, to AI agents that act for users, with physical AI such as robotics next. Each stage adds demand for computing power, memory and networking, though power or memory shortages could cause temporary slowdowns.

How do the US midterm elections usually affect the stock market? Midterm elections tend to cause short-term volatility. Based on seasonal data Li Chye shared, markets have more often been bullish after midterms, including a year later. He sees Republicans losing both the House and the Senate as the more volatile outcome, because it could slow policies such as data centre expansion.

Should Malaysian investors focus on the US market? That depends on your goals and experience, and you should make your own decision. In Li Chye's comparison, the US has been the most consistent performer, with strong earnings growth and many globally recognised companies. Malaysia has stayed broadly flat for 10 years, with selective rallies in data centre, construction, utilities and solar stocks.

What is a money market fund? A money market fund invests in very short-term, low-risk debt and pays interest, much like a fixed deposit. Large investors use them to park cash. US money market funds held about US$7.9 trillion in September 2026, near a record, as high interest rates make holding cash attractive.

Sources

Economic data

• US consumer prices: Reuters via Qatar Tribune, 14 October 2026
• US producer prices: US Bureau of Labor Statistics, 15 October 2026 [link to add]
• US jobs: US Bureau of Labor Statistics, October 2026

Markets and rates

• Treasury yields and Fed odds: Trading Economics, 23 October 2026
• Money market fund assets: First Trust, 22 September 2026
• Oil and Middle East: Maritime Executive, October 2026

Earnings

• S&P 500 earnings growth: FactSet Earnings Insight, 16 October 2026
• Meta cash flow: FXStreet, 22 October 2026

About Beyond Insights

Founded in 2008 by Kathlyn Toh, Beyond Insights is a Malaysian financial markets education company and Asia's pioneer in Investing and Trading Psychology Bootcamps. We have trained more than 8,500 students to invest and trade with structure, discipline and confidence. This article was written by the Beyond Insights Editorial Team, drawing on company training materials, original research, and the insights of our founder.

Disclaimer: This article is for educational purposes only and is not a recommendation to buy or sell any security. Beyond Insights is not a licensed investment adviser, does not give buy or sell calls and does not manage client funds. Information reflects data available on 27 October 2026 and may change. Investing involves risk, including the loss of capital.