Why are the Markets Suddenly Rejecting the Top Trades of 2026?

Tech stocks led a selloff as bonds surged and the US dollar failed to find a haven bid. Even gold and silver were swept up. Are the markets’ favorite trades going into reverse?

• Big tech dragged stocks lower, while most S&P 500 members held up on an equal-weighted basis
• Treasury bonds surged and the US dollar failed to catch a haven bid despite the risk-off mood
• Markets trimmed Fed rate hike bets, with the odds of a December move falling to about 77%

The trades that have powered markets this year, buying AI and tech stocks and selling bonds, went sharply into reverse. The S&P 500 erased three days of gains, turning lower from the underside of the range it broke last week and returning to challenge its early-October low. The bounce from last week’s selloff now looks like a correction within a broader move lower.

The tech-heavy Nasdaq 100 fared worse, breaking below the range floor the S&P 500 is still trying to hold. The small-cap Russell 2000, with far less tech exposure, was roughly flat, though it remains stuck within the downtrend in place since mid-August.

The damage was concentrated. On an equal-weighted basis, more S&P 500 stocks rose than fell. The selling focused on the megacap tech names that have come to dominate the index during the AI boom, and their weight was enough to drag the benchmarks lower.

The US dollar can’t find a haven bid

Capital seems to be flowing into bonds. Treasuries surged, extending a rally that has run through October. Crude oil edged up but its influence has pointedly waned this month, signaling the markets are looking through the “war trade” inflation scare shaping price action since the US-Iran conflict broke out in late February.

The US dollar’s response is perhaps the most telling. In times of stress, investors typically retreat to cash, and the greenback’s unrivaled liquidity makes it the destination of choice. That haven bid did not materialize. The yield spread between French and German government bonds is now wider than at any point in the 2010-2011 Eurozone debt crisis, a level of stress last seen in 1999, when markets doubted the newly created euro. Even so, the single currency heroically held its ground against the dollar.

Other currencies did better still. The British pound broke higher, the Canadian dollar kept climbing, and the Australian dollar waved off selling pressure despite a risk-off mood that usually weighs on it. One explanation is that selling US tech stocks means selling dollar-denominated assets. If foreign capital is heading home rather than parking in US cash, the greenback loses out.

Gold and silver did not benefit, however. Lower yields and a weaker dollar would typically support them. Instead, both broke below the bottoms of their recent ranges, apparently caught up in a broader speculative flush. Bitcoin dipped too but narrowly defended chart support.

Are rate hike bets fading for the wrong reasons?

The selloff did not stem from bad corporate news. According to FactSet data through October 16, tech companies have delivered some of the strongest earnings surprises of the season, second only to the healthcare sector. Yet companies beating forecasts have seen an average decline of 0.2% in the four days around their results, compared with a five-year average gain of almost 1%. Blended third-quarter earnings growth is pacing at 29%, just below the 29.2% expected a month ago. Results are validating forecasts without offering anything new, and markets seem to be losing patience.

Rate hike expectations softened sharply. Fed funds futures put the odds of a hold at next week’s meeting near 93%. More notably, the probability of a 25-basis-point (bps) hike in December fell to around 77% after being treated as a foregone conclusion a day earlier. A hike is fully priced by January, with one more expected toward the end of 2027. That leaves two hikes priced from here, down from three when the week began.

Growth worries may be what tipped sentiment. The Atlanta Fed’s GDPNow model has slid from a peak of 6% to 3.5% for the third quarter over the past two and a half months, as incoming data have weighed on the outlook. Official GDP figures arrive next week. Before that, flash purchasing managers index (PMI) data from S&P Global will offer a timely read on the economy.

If the PMIs disappoint, bonds may rally further, the US dollar could weaken more, and additional rate hikes may come off the board. Stocks are unlikely to take comfort, however. That is the bad kind of relief from tightening, driven by slower growth that threatens earnings.

Ilya Spivak, tastylive Head of Global Macro, has over 15 years of experience in trading strategy. He specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

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