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Executive Summary

  • After a strong rally from Liberation Day lows in April, equity markets finally cooled off in November and finished the month relatively flat.

  • However, some of the less-loved parts of the market, such as biotechnology and dividend-oriented stocks, rotated into favor as AI-related technology stocks struggled during the month.

  • Despite some weakness in the labor market, economic activity has remained relatively resilient this year and early signs from holiday shopping suggest that could continue in the near term.

  • While the government shutdown finally ended during November, several other potential market headwinds – including the Fed’s decision to cut rates again or not, potential AI over-exuberance, and a Supreme Court ruling on President Trump’s use of emergency powers to enact tariffs – are still present as we approach year-end.

Markets Leadership Rotates

After Liberation Day tariffs temporarily stole the financial media spotlight to begin the year, the artificial intelligence (AI) story once again reclaimed control over media, markets, and the economy through October.  Spending on AI capital expenditures helped propel economic growth and AI-related stocks such as the “Magnificent 7” helped to pull equity markets to all-time highs.

 

However, November witnessed many of those AI-related technology stocks slip while some of the unloved parts of the market surged.  For example, the Nasdaq 100 ETF (a proxy for large US technology stocks) fell 1.6% for the month while biotechnology and dividend-oriented stocks were up 9.3% and 4.0%, respectively (as represented by the ETFs listed below).


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While it is far too soon to suggest that the AI story is over, it was good to see diversification working as other parts of the equity market stepped forward.  In addition, bonds, as represented by the Bloomberg US Aggregate index, advanced slightly during the month, and gold (as represented by the S&P GSCI Gold index) continued its strong performance this year by rising over 5% during November.[1] 

 

Economic Update – Holiday Spending in Focus

Economic activity has remained relatively resilient thus far in 2025 and the Atlanta Federal Reserve’s GDPNow, an indicator intended to measure current economic growth, stands at 3.9% (equating to solid growth).[2]  As we have pointed out in previous Dashboards, capital spending on AI has had a meaningful impact on economic growth this year, accounting for more GDP (Gross Domestic Product, a proxy for economic activity) growth through the first half of the year than all personal consumption spending.[3] 

 

However, with the labor market softening and consumer sentiment remaining low, we are watching consumer spending during the holiday season to get a sense of the overall health of the consumer.  If spending over Cyber Week (the five days between Thanksgiving and Cyber Monday) is an early indication, consumers spending appears to remain strong.  Consumers spent over $44 billion during this five-day period in 2025, up 7.7% over the same period in 2024.[4]

 

The Federal Reserve (Fed) is set to meet again on December 10.  Chair Powell emphasized strongly differing views amongst Fed participants at the last meeting in October, stating, “further reduction in the policy rate at the December meeting is not a foregone conclusion, far from it.”[5]  While markets do appear to be pricing in another 0.25% interest rate cut in the December meeting currently, the divided opinions amongst the voting members and the upcoming appointment of a new Chair provide the backdrop for an interesting meeting.[6]

 

The Path Forward

As we approach year-end, we look back at a year in which both the economy and markets have exhibited incredible resiliency in the face of uncertainty.  From policy changes including the massive increase in tariffs, government employee reductions, changes in immigration policy, and the passing of the One Big Beautiful Bill, to the longest government shutdown in history and the unknown outcome of AI hyperscaling, investors have benefitted so far in 2025 by staying the course despite the potential uncertainty.

 

That is not to suggest that uncertainty is off the table.  In fact, the US Supreme Court heard oral arguments in November to determine whether the president’s use of emergency powers under the International Emergency Economic Powers Act (IEEPA – yellow section in the chart below) include the power to impose tariffs.  Tariffs generated $195 billion in revenue for the federal government in fiscal year 2025 and are projected to reduce the US deficit by $3 trillion by 2035.[7]


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If the Supreme Court upholds the lower court decisions of the tariffs being illegal, it may result in a large portion of this revenue being refunded.  In addition, future federal revenue projections may need to be revised lower, making the budget deficit projections look even worse (absent policymakers codifying some tariffs into law or finding other replacement revenue).  Should the Supreme Court rule the IEEPA tariffs to be illegal, we see both a bullish case to be made for markets (tax rebate for companies) or a bearish case to be made (worries over the unsustainability of the US deficit), depending on how markets interpret the decision.

 

The uncertainty over tariffs brings Yogi Berra’s famous quote to mind, “It’s tough to make predictions, especially about the future.”[8]  As a result, we continue to advocate for diversification while we observe how events and stories shaping markets unfold over the remainder of the year.  We appreciate your continued trust and welcome the opportunity to speak with you in greater detail in the context of your specific situation.

 

[1] Source: YCharts through October 31, 2025

[2] Source: https://www.atlantafed.org/cqer/research/gdpnow, as of December 1, 2025


Important Information

All investments contain risk and may lose value.  Past performance is not an indication of future performance.  Information contained herein has been obtained from sources believed to be reliable but not guaranteed. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.

 

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate.  There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all clients and each client should evaluate their ability to invest for the long term, especially during periods of downturn in the market.  Outlook and strategies are subject to change without notice.

 

Certain third-party sources cited in this material may require a paid subscription or may otherwise be located behind a paywall. If you would like more information regarding any cited source, please contact IRP and we will provide additional details upon request.


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