November 2025 - All's Well That Ends Well

2025-12-01 13:35:00 ET

• All’s Well. You probably would not have guessed it by the somewhat muted end-of-month return of (+.25%) on the S&P 500, but the market for the first time since April experienced some modest bouts of volatility. During the depths of this month’s market drawdown, the index was down (-4.55%) from its high-to-low. However, sentiment quickly recovered in the final two weeks of November - see top left chart above. The volatility was driven by doubts around two powerful market movers: AI and future rate cuts.Article: CNBC
• AI Indigestion. As powerful as AI is and is going to be one day, too much of a good thing never ends well. Investors have been repeatedly gorging themselves on - the up and to the right - AI investment theme for the past couple of years. To us, this is like helping yourself to a third or even fourth helping of Thanksgiving dinner. In the moment, it is holiday bliss, but we often forget that our gluttonous behavior may have us barreling towards some wicked future heartburn.The November AI heartburn. During the month, there were a lot of negative scuttlebutts around the poster child of AI, Nvidia ( NVDA ). Questions around circular financing of customer purchases, electricity constraints restraining future AI investment, the appropriate depreciation schedule of their GPUs, post-earnings analysis questions around rising inventory and receivables levels, as well as fresh competition from Google ( GOOG , GOOGL ) on the AI accelerator front. The negative commentary and news flow threw some cold water on Nvidia’s stock (-11.95%), and AI peers like Microsoft ( MSFT , -9.23%) and Meta ( META , -13.77%) also felt the chill. Our AI bubble names, Oklo ( OKLO , -30.92%) and Palantir ( PLTR , -11.16%) also faced significant pressure. Check out our October memo on the AI Bubble.Article: CNBC | Article: CNBC
• Rate Cuts. In October, when the Fed cut short-term interest rates to a range of (3.75-4.00%), Jerome Powell, the Chair, pushed back on the expectation for another round of rate cuts in December. At the beginning of November, calls for a pause in monetary policy easing gained momentum, but as time passed, further evidence of labor market deterioration emerged. This creates a precarious balancing act for the Fed; cut rates and risk stoking inflation, or do nothing and risk a labor market spiral. On the 25th, ADP reported that payrolls declined by -13,500 on 4-week moving average. The added evidence of labor weakness pushed the probability of a Dec. rate cut above 50%, which very likely contributed to the late-month rally in the stock market.

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