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- The S&P 500 posted its seventh consecutive monthly gain (+0.2%), though volatility increased.
- With 30% of the S&P 500 now tied to artificial intelligence, investors are seeking evidence of AI-driven productivity gains and revenue growth.
- The Fed’s economic outlook was hampered by shutdown-delayed data, but markets appear to be anticipating a December rate cut.
U.S. equities experienced elevated volatility in November, but posted their seventh consecutive month of gains, with the S&P 500 rising 0.2%. Large-cap growth stocks declined 1.8% on AI-related weakness, while large-cap value rose 2.7%. Meanwhile, small-cap stocks and the Dow Industrials outperformed the S&P 500 Index. Eight of 11 S&P 500 sectors outperformed the index as a whole, with the top-performing Healthcare sector returning 9.3%. The Technology, Consumer Discretionary, and Industrials sectors lagged the index.1
Outside the U.S., we observed a divergence in international equities, as developed international markets delivered a 0.6% gain, while emerging markets declined 2.4%. In our view, international equities remain compelling due to currency tailwinds, strong earnings dynamics, and lower valuations.
Fixed income markets benefited from modestly lower yields. The Bloomberg U.S. Aggregate Bond Index returned 0.6% for the month and is up 7.5% year to date. Investment-grade bonds slightly outperformed high yield at 0.6% versus 0.5%.
Bitcoin declined 17% amid risk-off positioning and outflows, while gold advanced but remained below its mid-October peak.2
Source: YCharts
The AI Trade Enters Its Next Phase
Tech stocks have been an important driver of returns in 2025. But after a dramatic run-up in share prices, the “Magnificent 7” stocks gave back some gains in November. Investor sentiment related to artificial intelligence drove much of the tech stock volatility. Delayed economic reports, showing moderating inflation and cooling labor conditions, were eventually released later in the month, thus improving expectations of December rate cut.
As the initial hype about AI begins to wane, the industry’s high capital spending and long return horizon are starting to fatigue investors. At this point, nearly 30% of the S&P 500 Index is tied to artificial intelligence.3 As a result, any weakening of the AI investment theme could negatively impact the overall performance of the index.
A natural evolution in the AI investor mindset is likely underway. Rather than AI-related stocks moving as a block, we anticipate seeing increased selectivity, with investors supporting stocks that offer a clearer link between AI investments and earnings growth, a proven return on investment, and a broader economic benefit in areas such as market growth and productivity.
A Brief Risk-Off Episode Across Markets
Mid-November saw the largest spike in volatility since April’s “Liberation Day” tariff announcement. As investors sought safety, U.S. bonds and defensive assets gained, while tech stocks, high-yield bonds, and crypto faced selling pressure.
U.S. equities have experienced six drawdowns of 5% or more this year, which is within a normal historical range. The fundamentals of underlying tech stocks remain solid: Nvidia reported robust third-quarter earnings, and some of the Magnificent 7 stocks, including Google, Apple, and Meta, rebounded after earnings.1Nevertheless, the environment might be shifting, with investors becoming more selective moving forward.
The Federal Reserve Faces Incomplete Data and Shifting Expectations
Shifting interest rate expectations played a central role in November volatility. Confidence in a December rate cut began near certainty but declined sharply after Chair Powell warned that incoming data lacked clarity and policymakers held differing views. Equity markets reached their low point following his remarks. Delayed economic reports, showing moderating inflation and cooling labor conditions, were eventually released later in the month, thus improving expectations of December rate cut.
Source: CME FedWatch
Government funding disruptions delayed key federal economic reports, limiting visibility for both investors and policymakers. While the shutdown itself had a muted market impact as investors focused on fundamentals, the absence of timely data made policy assessment more difficult. September figures provided partial clarity, yet no October report was issued, leaving important indicators incomplete. Consumer sentiment also deteriorated. The University of Michigan Index fell from 53.6 to 50.3, one of its lowest readings on record, reflecting anxiety over inflation, employment prospects, and political uncertainty.5
Source: MarketDesk, University of Michigan
Although federal funding has now been extended into late January, lawmakers will soon face important decisions on discretionary spending, including the future of federal healthcare subsidies. For markets, however, the key focus remains the policy path. At present, investors expect a rate cut in December, although this is based on market sentiment and is subject to change. Any potential for additional rate cuts by the middle of next year remains speculative and should be considered in the context of broader economic conditions and Federal Reserve communications.
Investment Takeaways Heading into Year End
Uncertainty around economic conditions and a reassessment of technology valuations contributed to November volatility. These periods of repricing are a normal part of market cycles, and despite the fluctuations, both equities and bonds are on track to finish the year with meaningful gains. Broadly diversified portfolios were able to absorb these swings more comfortably, helped by steadier bond markets as interest rates eased.
Looking forward, we expect the AI narrative to continue evolving as the market shifts from enthusiasm over infrastructure buildout toward a demand for evidence of earnings impact and productivity gains. The delayed release of key economic data has added to uncertainty, increasing the importance of Federal Reserve communication as the year concludes. With markets pricing in a December rate cut and anticipating the potential for additional easing through the middle of next year, policy signals will remain an important driver of sentiment.
Against this backdrop, we encourage clients to remain anchored to long-term objectives and maintain appropriate diversification across asset classes. A patient approach, rather than reactive adjustments to short-term headlines, remains the most effective way to stay positioned for opportunity while navigating uncertainty.
1 MarketDesk
2 Morningstar
3 CNBC
4 Bloomberg
5 Wall Street Journal
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The Standard & Poor’s (S&P) 500 Index is an index of 500 stocks seen as a leading indicator of U.S. equities and a reflection of the performance of the large cap universe, made up of companies selected by economists. The S&P 500 is a market value weighted index and one of the common benchmarks for the U.S. stock market.
The MSCI EAFE Index is a stock market index that measures the performance of large- and mid-cap companies across 21 developed markets countries around the world. Canada and the USA are not included. EAFE is an acronym that stands for Europe, Australasia, and the Far East.
The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market.
The MSCI Emerging Markets is a global stock market index that tracks the performance of large and mid-cap companies across 24 emerging markets. It is maintained by MSCI, formerly Morgan Stanley Capital International, and is used as a common benchmark for global emerging market stock funds.
Dow Jones Industrial Average® (Dow Jones or DJIA) is a stock market index representing the price weighted average of 30 large, publicly owned companies trading on the New York Stock Exchange (NYSE) and the NASDAQ. The component stocks are accorded relative importance based on the prices, unlike other indices which weight by market capitalization. The companies in the DJIA are leaders in their industries, and their stocks are widely held by individuals and institutional investors.
The “Magnificent Seven” refers to a group of seven high-performing, influential stocks in the technology sector. Alphabet (GOOGL; GOOG), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), NVIDIA (NVDA), and Broadcom (AVGO).
The Bloomberg Barclays US Aggregate Bond Index (US Agg Bond) is a market capitalization weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most US traded investment grade bonds are represented. Municipal bonds and Treasury Inflation-Protected Securities are excluded, due to tax treatment issues. The index includes Treasury securities, Government agency bonds, mortgage-backed bonds, corporate bonds, and a small number of foreign bonds traded in the US. CSP2025311
