EQUITY & FIXED INCOME MARKETS
Equity markets favored small and mid-caps in November with the S&P 500 Index, the S&P 400 Mid-Cap Index and the S&P 600 Small-Cap Index returning 0.2%, 2% and 2.7%, respectively. The Goodman Blended Equity Benchmark rose 1.3% for the month. International stock indices were positive as developed markets ex U.S. were up 0.5%. Fixed income markets were positive as the Fed continued its easing cycle. GFC’s Fixed Income benchmark was up 0.7% for the month.
CHANGES IN SENTIMENT
Two important changes in sentiment happened in November that may impact markets well into 2026. The first was related to the Federal Reserve, as there was a big swing in easing expectations for the next Fed meeting in December. The fallout from Fed Chair Powell’s last FOMC press conference comment that a December rate cut is “not a foregone conclusion”, hawkish comments from multiple Fed officials, and October FOMC minutes that noted many Fed officials suggested to keep rates unchanged all had pushed the probability of a December rate cut to below 30% at one point in mid-November. But right before Thanksgiving, dovish comments from NY Fed President Williams and market chatter around the appointment of Kevin Hassett as the next Fed Chair both triggered a sharp reversal in expectations, with December rate cut odds accelerating to above 80% to close the month.
The second was related to increased scrutiny around the Artificial Intelligence (AI) growth theme that has been dominating markets since 2023. Investors expressed concerns around the viability of spending commitments, uncertainty around AI productivity, circular reasoning around financing terms, and increased competition from China. OpenAI was front and center, with an announced $1.4 trillion in spending commitments vs. $20 billion in expected revenues for 2025 and no visibility on profitability. There were also heightened concerns around the increased use of complex debt financing options to fund their growth. Other negative data points related to AI included Softbank’s sale of its entire Nvidia stake, the underperformance of Nvidia stock despite beating earnings and raising projections, and the emergence of Google as a serious competitor to both Nvidia in chips and to OpenAI’s ChatGPT with the well-received Gemini 3 launch. Famous short-seller Michael Burry (of “The Big Short” fame) also entered the chat in November, highlighting concerns around accounting practices that may be underestimating expenses and overestimating profits for AI-related companies.
Corporate earnings remained strong, with 83% of companies beating estimates during this earnings season while overall earnings growth was around 13.5%. Regardless, many of these earnings beats did not move stock prices as expectations were already sky-high. To highlight the ‘risk-off’ environment even further, speculative assets such as bitcoin also had a bad month.
Given these changes in sentiment, the equity markets reacted accordingly: large-cap technology stocks had their worst month since April, while defensive sectors such as consumer staples and health care showed outperformance. Small and mid–cap companies shined on expectations for a Fed cut in interest rates. Given our current positioning (underweight technology, overweight defensive sectors, overweight small and mid-cap), we outperformed accordingly. On the fixed income side, Treasuries had the best overall performance as the 10-year Treasury Bond went from 4.15% to under 4% briefly for the month.
On the broader economy, there were concerns around labor market softness with jobless claims rising to the highest level in three years, persistently sticky inflation, worries around loan losses in the private credit market, and tariff uncertainty with the Supreme Court potentially ruling against reciprocal tariffs soon. This all led to increased market worries about the potential of a ‘K – shaped’ economy, which signals widely disparate outcomes for different constituents of the economy.
Running on an ‘affordability’ platform, decisive wins by the Democratic Party in recent state and local elections may have helped the Trump Administration pivot to tariff relief, as they walked back tariffs on beef, coffee and tropical fruits in November. We would expect affordability to remain a key issue going into 2026 midterms with potential stimulus activity in the housing sector, increased deregulation for the banks, and further tariff relief. The economic benefits of the One Big Beautiful Bill, which includes significant tax relief for businesses, will also start showing up in 2026. As a result, our sentiment remains unchanged that the US economy is healthy enough to digest these worries on AI spending and uncertainty around inflation and interest rates.
Robin Kollannur, CFA
Chief Investment Officer
