Volatility returned to equity markets in November, but hardiness and resilience ended up winning the day (or month). The flagship S&P500 declined 5.7% from October highs – its largest retracement and lone technical correction since April – but ended modestly positive thanks to a strong Thanksgiving week rally. The monthly winning streak now stands at seven. The mid-month selloff arose from concerns over weak consumer sentiment, a lack of key economic data arising from the government shutdown, and anxiety around mega-cap tech and AI valuations. The buzzwords “AI” and “bubble” popped up across financial media, resulting in growth and tech names lagging the broader markets. However, as has often been the case in recent time periods, the Federal Reserve stepped in and saved the day, with dovish commentary from multiple Fed officials resulting in a sharp rise in December rate cut odds and the aforementioned Turkey Rally. In our estimation, this resiliency underscores the current strength in equity markets, despite the return of elevated volatility.
Fixed income markets were also up mildly in November, with government treasury securities notching their fourth consecutive month of positive returns. Notably, bond allocations provided ballast and stability for diversified portfolios during the month, as volatility in equity markets translated to capital preservation and a modest total return in fixed income. Yields traded in a tight range during the month, as the ongoing government shutdown (now resolved) kept economic data limited and unreliable. Still, bond markets fixated on dovish remarks from key Fed members and governors, particularly New York President Williams, which reassured investors that a December rate cut was very much still on the table. Accordingly, credit spreads tightened, and yields reversed earlier losses. By month end, the odds of a December rate cut surged to 90% from 35% just days earlier. If the Fed does indeed reduce its key interest rate in December, it would be the third cut this year, following up on the three cuts enacted in 2024.
As previously mentioned, the government shutdown resulted in major economic releases being delayed or going entirely unreported. Nonetheless, upon the record 43-day shutdown ending on the 13th, we did receive a few dribs and drabs of important data. The jobs report for September was released, revealing job creation to the tune of 119K, well above expectations. However, the data also showed the flip side of that coin: unemployment ticked up slightly from 4.3% to 4.4% month-over-month. This headline number reassured investors who had been grappling with the notion of increasing slack in the labor market and provided further fundamental support for risk assets. Other than jobs data, we didn’t get much to go off in November. Consumer sentiment fell on lingering shutdown and inflation concerns, but otherwise, there were very few releases to analyze and digest. The market is highly anticipating incoming jobs and inflation data, both of which are due in early to mid-December. One thing is for sure; it will be nice to get back up and running in a timely manner as we begin the new year next month.
Against the backdrop outlined above, the fundamental outlook remains constructive. Third quarter earnings results were extraordinarily strong, coming in at nearly double expectations, and with all 11 S&P500 sectors beating estimates. The beat rate for the overall index came in at an impressive 83%. Top line revenue growth was also impressive at 8.4%, the highest in three years. And despite investor concerns over an “AI investment bubble,” demand for AI products and services continues to be robust. As such, the Magnificent 7 names – and broader AI-related companies more generally – continue to produce exceptional financial results. While November was indeed volatile, with large moves and elevated VIX readings, the three “legs of the stool” (economic growth, earnings growth, and declining interest rates) continue to provide support and allow the bullish bias to persist.
As we wind down 2025, and despite the recent upswing in volatility, there are numerous reasons to be hopeful about the market’s future. Much like what we saw during the depths of the “tariff tantrum” in April, this month the market rebounded strongly off the November lows in a broad-based manner. The three legs of the stool remain durable and strong. A December interest rate cut is widely anticipated, which could provide a further boost for both stock and bond markets to conclude the year. Furthermore, we have seasonality on our side, as December has historically ranked in the top quartile of months in terms of percentage gains on average. While there are always risks – both known and unknown – we rest assured that we will be prepared to react and adjust to market conditions as necessary.
This will be our final writing of 2025. All things considered, it has been an interesting and truly great year. We wish you all a happy and healthy holiday season and look forward to working together in 2026 and beyond. As ever, thank you all sincerely for your confidence and support.
Sincerely,
Jason D. Edinger, CFA
Chief Investment Officer
Altara Wealth
This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.