Market Update
Economic & Market Update
November 2025
The month of November can most appropriately be characterized by heightened volatility and risk-off sentiment. However, despite the recent selloff the major US equity indices remain within an earshot of all-time highs.
The market's quick descent to two-month lows reflects a host of heightened risks including less clarity about the general state of the economy (particularly the labor market and inflation), possible late-year profit taking in equities after a stellar year of outperformance, and cloudiness surrounding the Federal Reserve's next policy moves.
The extraordinary buzz around AI investment has carried us consistently to all-time highs this year, but that momentum appears to be temporarily waning. There are early signs that the excitement around AI is on pause while market participants await more concrete economic data and clearer signaling from the Fed.
The CBOE Volatility Index has been elevated for 5 consecutive weeks, which is quite rare for this index. Products tied to the volatility index are used by financial market practitioners to hedge portfolios against market declines, so when this index is higher it means markets are becoming more fearful of a potential drop in the future.
3Q25 earnings season is now staunchly in the rearview mirror. 95% of S&P 500 companies have released results, and 83% reported earnings per share above expectations, while 76% reported positive revenue surprises. Aggregate 3Q25 S&P 500 revenue growth of 8.4% has been the best growth since 3Q22, when companies had relatively easy comparisons against Covid-era results.
A general lack of crucial economic data in November coupled with associated monetary policy uncertainty have muddied the near-term outlook. The longest government shutdown in history ended in mid-November after 43 days of intense negotiation and several delayed economic reports that were widely regarded as vital inputs into the Fed’s monetary policy decision-making process. Despite the recent pickup in volatility, underlying economic growth and fundamentals remain strong. The Atlanta Fed’s GDP Now tool is currently forecasting 3Q25 GDP growth above 4%.
Equity Markets
Equities fell across the board in November, with the S&P 500, Nasdaq, Russell 2000, and international stocks all dropping in tandem. This marks the third consecutive losing week for the Nasdaq Composite despite overall strong results from the tech sector.
AI skepticism has begun to emerge. Market participants are questioning capital expenditure sustainability, widening credit spreads, and whether companies will see a return on investment. Communication services, Healthcare, and Consumer Staples have been the only positive sectors while tech and consumer discretionary have led the declines in November so far.
Last week, Nvidia released earnings results that surpassed consensus. More importantly, the company provided guidance for sales and gross margin for next quarter that exceeded forecasts, yet the stock fell about 6%. This has been part of a broader pattern occurring this earnings season, as companies have been penalized for missing earnings but have not been rewarded for beating earnings. Nvidia’s decline despite the solid results was even more notable, with both the company and the broader market seeing an initial rise and then a sharp reversal the day after reporting.
International stocks are expected to see double-digit earnings growth this year after several years of stagnant gains, while still trading at a considerable discount to US equities. Although large cap US equities have outperformed for a number of years, it’s important to continue gaging the risk-reward profile as valuations remain elevated.
Valuation
One primary reason for the lackluster reactions to earnings in 3Q25 was high valuations. Before this most recent selloff, the S&P 500 was trading above 23x NTM P/E, which was higher than levels seen during the pandemic when interest rates were near all-time lows. This has placed additional pressure on companies to continue to deliver better results, with the S&P 500 projecting ambitious earnings growth of 11% for the balance of 2025.
Another reason for high valuations is equity market concentration. The top 10 companies are trading at 30x forward earnings and comprise ~42% of the market-cap weighted index. The rest of the index is trading at only 19x forward earnings. The top 10 companies are still expected to outpace the growth of the rest of the index over the next year, with almost double the growth, although this growth may already be priced into the stocks.
Fixed Income
Treasury yields declined in November so far despite a mixed reading from the delayed employment report. Essentially, treasuries experienced curve flattening. The 2-year yield fell as investors priced in a slightly greater probability of a December interest rate cut. In contrast, the October FOMC meeting minutes showed that a few Fed officials do not believe they should cut rates in December due to concerns over rising inflation.
Economic Data
The postponed September jobs report provided a mixed image. It presented better numbers than expected, but the unemployment rate ticked slightly higher. Most of the attention this holiday-shortened week will be on retail sales, consumer confidence, and producer prices. All this information is supposed to be released on Nov 25. The Producer Price Index for September is expected to be mixed after falling unexpectedly in August. Retail sales are expected to grow for the fourth consecutive month. The Consumer Confidence Index for November is expected to fall as concerns over inflation and employment weigh on consumers.
Looking Ahead to Next Year
December will be pivotal for the Fed’s next move and the clarity on the economic data backlog. The jobs data, inflation trends, and forward guidance will likely drive market positioning into the new year. For 2026, financial market practitioners are currently projecting US equities to outperform their global peers, underpinned by strong earnings growth and structural capex shifts.
Conclusion
Despite the uncertainty that defined November (ranging from elevated volatility and delayed economic data to shifting expectations around Fed policy) the broader market and economic backdrop remain resilient. With corporate earnings still strong, GDP growth running above trend, and international equities beginning to show renewed promise, the foundation for long-term investors is sturdier than recent headlines may suggest. As we move into December and approach a year shaped by pivotal monetary decisions and evolving AI-driven capital investment, maintaining a disciplined, fundamentals-based approach will be essential.