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The S&P 500 was mostly flat in November, yet volatility spiked as shifting expectations for a December Fed rate cut triggered a mid-month decline before sentiment reversed and markets recovered.
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The month marked a shift from concentrated AI-driven gains toward broader participation, with Health Care and higher-quality, consistent earners gaining traction.
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AI’s momentum cooled as investors grappled with rising capital demands, intensifying chip competition, and the reality that early technological leads can quickly vanish.
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Fixed income stood out as intermediate bonds rallied, supported by declining short-term yields, curve steepening, and anticipation of additional rate cuts into 2026.
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Macroeconomic uncertainty rose amid the prolonged government shutdown, data-collection gaps, sticky inflation, and shifting tariff policies.
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With consumer confidence weak and lower earners strained, spending may skew cautious, though improving market breadth and healthy bond performance bolster the 2026 outlook.
While the S&P 500 barely moved during November (+0.25%, 17.8% year-to-date), plenty of interesting action bubbled beneath the surface. Two-thirds of the way through the month, the expectation for a December Federal Reserve rate cut bottomed, helping send the market down some 5%. This reversed rather quickly, and by month-end a December cut was the consensus, with the market recovering from the dip. The trends within the market were also telling, as the unbridled enthusiasm for anything AI abated and the market broadened, with Health Care leading the way. Higher-quality, consistent earners found favor from large to small stocks.
Since so much of the trailing market rise was centered on the AI trade, the November move away from this theme was notable. Factors included investor concern over the megacap trend from relying mostly on cash flow for AI investments to issuing significant debt. The rapidly shifting foundation underlying the AI tech boom was also displayed in newly introduced chip capacity, which suggested a challenge to Nvidia’s virtual monopolistic advantage. Perceived leadership change among the top Large Language Models was another reminder that cutting-edge technologies are subject to unexpected disruptions and early advantage is no guarantee of future success. Another ongoing issue for investors: financial return commensurate with the enormous investments being made in the data centers underlying AI capabilities.
Meanwhile, the results for investors in intermediate bonds continued to point towards a banner year, with the Bloomberg Aggregate Index returning 7.5% through November. The yield curve steepened as shorter rates dipped in anticipation of upcoming Federal Reserve cuts, while the bellwether 10-Year Treasury traded in a narrow yield range near 4.0%. The 2026 outlook pointed towards additional cuts based on the likely prejudice of a newly appointed Federal Reserve Chair in May. Another macro factor was the longest government shutdown in history and its broad economic effects, including a possible dampening of fourth quarter GDP. The hiatus in economic data gathering heightened uncertainty even as the job market appeared to be softening while inflation remained sticky. The perceived impact of tariffs bounced with the continued negotiations and announced exceptions. It will take a few months of renewed labor and inflation reports to sort through the confusion.
The upcoming holiday shopping scene is likely to be mixed, with affluent shoppers buoyed by the wealth effect of three years of solid market returns. On the other hand, price increases remain hard on the bottom half of earners who may be more likely to spend holiday dollars on essentials rather than luxuries. The general depression in consumer confidence is also likely to be reflected in shopping behavior.
As we look past the holiday season into 2026, we find reason for optimism in November’s broadening stock market and solid returns in fixed income. The trend away from narrow market leadership should match our preference for high-quality companies trading at reasonable valuations. It’s also rewarding to see fixed income allocations adding meaningfully to total returns, a trend we believe has legs.