Market Overview
Markets entered November with a softer tone following an extended stretch of gains. After a strong summer rally, early-month trading reflected mild profit-taking and a modest rotation toward safer assets. The shift followed cautious remarks from several financial leaders—including executives at Goldman Sachs, Morgan Stanley, and JPMorgan Chase CEO Jamie Dimon—who noted elevated valuations and the potential for a short-term pullback. Despite the slower start, the broader backdrop remains constructive: corporate earnings and productivity growth continue to support equities, bond markets have stabilized as inflation pressures ease, and while a December Fed rate cut is uncertain, policy direction still points toward gradual easing.
Equities Extend Gains
U.S. equities extended their year-to-date gains in October, supported by robust corporate earnings and optimism surrounding the ongoing shift toward monetary easing. The S&P 500 advanced approximately 3.4% for the month, bringing its 2025 gain to around 17.5%, while the Nasdaq 100 outperformed, driven by mega-cap technology leaders benefiting from advances in artificial intelligence and digital infrastructure.
Earnings Momentum and Market Resilience
Third-quarter S&P 500 earnings rose 10.7% year-over-year, nearly two percentage points above expectations at the end of September—marking the fourth consecutive quarter of double-digit profit growth. While some investors have drawn parallels to the speculative surge of the late 1990s, today’s bull market appears grounded in genuine earnings expansion and productivity-driven growth, rather than the exuberance that defined the dot-com era. Still, after such strong performance, a healthy near-term correction would not be unexpected.
Fixed Income and Alternative Assets
In the bond markets, credit spreads remained tight in October before jumping modestly with the equity sell-off to start the month. Bitcoin fell more than 17% from its record high in early October, while gold gave up about 10%—both showing signs of ebbing animal spirits. The 10-year Treasury yield ended October near 4.08%, little changed on the month, while the 2-year rose modestly to 3.6% after the FOMC cut the Fed Funds rate but signaled that a December rate cut is not a certainty.
Federal Reserve and Policy Outlook
Monetary policy remains at the heart of the market narrative, with the Federal Reserve—constrained by limited data due to the government shutdown—continuing to tread carefully. Chair Jerome Powell reiterated that policy decisions will remain data-driven. His remarks balanced recognition of disinflation progress with a warning that inflation remains above target. With Powell’s term set to expire in May 2026, uncertainty around future Fed leadership adds an additional layer of complexity for markets already adjusting to a slower, more deliberate policy pace.
Economic Backdrop: Strength with Fragility
The economy continues to display both resilience and vulnerability. The October ISM Manufacturing Index fell to 48.7, marking an eighth consecutive month of contraction as tariffs, global trade headwinds, and cautious business investment weighed on output. Yet the service sector and consumer activity remain firm, supported by rising real wages and productivity improvements.
Labor Market and Productivity Trends
The labor market, while cooling, has not deteriorated meaningfully. ADP’s private employment data show stability, while the Fed’s Beige Book reported muted hiring and modest layoffs concentrated in technology and finance. Initial jobless claims remain subdued, signaling that weakness remains contained rather than systemic. This “jobless expansion” has allowed the Fed flexibility to ease gradually without reigniting inflation. Strong productivity growth—partly driven by advances in AI and automation—has helped maintain GDP momentum despite a softer labor market. Inflation expectations have edged lower, suggesting continued confidence that price pressures can normalize without a deep downturn.
Portfolio Positioning and Strategy
Our portfolios remain broadly balanced between income-generating and growth-sensitive exposures, with a tilt toward international opportunities. Credit strategies such as bank loans and BB–BBB-rated CLOs continue to offer attractive yields with limited duration risk, while equity allocations emphasize cyclical and structural growth. European holdings, particularly in Italy, Spain, and defense industries, benefit from resilient domestic demand and fiscal support. In Asia, exposure to South Korea and Vietnam positions investors to capture long-term opportunities tied to manufacturing diversification and export strength. In the U.S., technology and digital infrastructure remain at the core of growth-oriented strategies, supported by earnings leadership and innovation momentum.
Outlook: Balancing Optimism and Disciplin
Looking ahead, markets face a mix of optimism and caution. Equity valuations—albeit historically high—remain supported by earnings strength and improving productivity. The Fed’s anticipated rate cut—whether in December or early 2026—could extend the rally, though volatility may rise as leadership transitions and valuations adjust. Fiscal uncertainty, geopolitical risks, and lingering inflation all argue for maintaining balance and discipline.