U.S. value stocks are on pace for their sharpest monthly outperformance against the S&P 500 since the dot-com bust in early 2001, as Wall Street rotates away from unproven AI growth stories and toward companies with tangible cash flows and sturdy balance sheets.
The iShares Russell 1000 Value ETF, ticker IWD, has risen 5% in October and reached an all-time high of $260.64 on Thursday. The SPDR S&P 500 ETF Trust has gained just 0.8% over the same stretch. The 4.2-percentage-point gap is the widest monthly advantage for the value fund since its launch in 2000. The split is even more pronounced against growth equities: the iShares Russell 1000 Growth ETF has fallen 3.3% this month. Year to date, IWD has returned 23.8%, while its growth counterpart has advanced only 2.4%.
Thursday’s trading session captured the shift in real time. Alphabet Inc. dropped 12% after a disappointing third-quarter report, and ServiceNow Inc. sank 25% — its biggest one-day decline on record — following softer contract growth guidance. Yet the Health Care Select Sector SPDR Fund hit an all-time high the same day. The divergence underscores that capital is shifting within the stock market, not leaving it entirely.
Many investors have drawn parallels to February 2001, but the underlying mechanics are fundamentally different. Two decades ago, value outperformed simply by falling less during a sweeping tech selloff. The Invesco QQQ Trust lost 26.2% that month, the Russell 1000 Growth ETF dropped 17.8% and the S&P 500 ETF slid 9.5%, while the value ETF slipped just 2.7%. This October, value shares are posting absolute gains and the S&P 500 remains positive for the month, marking a rotation rather than a broad retreat.
The interest rate backdrop also stands in contrast. The Federal Reserve held its policy rate in a range of 3.75% to 4.00% this week after a September hike, with two policymakers dissenting in favor of another increase. Elevated rates put the most pressure on companies whose valuation rests on profits expected far in the future. A Bank of America investment strategist said in an Oct. 23 report that signs are building that markets are increasingly unwilling to fund AI infrastructure buildouts. Analysts at 22V Research echoed that view in an Oct. 27 note, saying capital committed to AI expansion has made cash returns scarcer.
Markets are also becoming more discerning about AI exposure, according to the chief investment officer at Fifth Third Wealth Advisors. Investors are increasingly separating companies that are successfully monetizing AI from those still racking up large capital expenditures without clear revenue or cash flow payoffs. The landscape rewards selectivity: current cash flow over distant promises, strong balance sheets over leverage, and proven AI monetization over mere announcements of higher AI spending.
Not all observers see a broader market top forming. The chief investment officer at Northlight Asset Management said equities are not on the cusp of a bear market, despite widespread anxiety around capital spending this month. History shows 2001’s standout month for value came early in a multiyear style leadership shift, not at its end. Whether October 2026 ushers in a similar cycle depends on one variable Wall Street cannot yet price: how fast AI spending turns into AI revenue.
