Rate cuts prospects, AI momentum and strong earnings fueled gains
November 2025 saw global markets rally on easing inflation and resilient earnings, though volatility persisted as investors weighed record S&P 500 net margins and earnings growth against sustainability concerns. The S&P 500 Index posted the 7th consecutive month in gains, the longest since August 2021. Cyclicals outperformed defensives, while AI mega‑caps remained central to gains, although Nvidia slipped 11% amid bubble fears and rising competition. Bond markets priced in a sharply higher probability of a December Fed rate cut after dovish signals from policymakers, weaker consumer confidence, and moderating inflation, driving Treasury yields lower. Equities initially surged on rate‑cut optimism but later pulled back, with the VIX climbing above 23 as credit spreads widened and geopolitical risks resurfaced. Regionally, Asia outperformed on tech strength, Europe lagged with cautious monetary stances, and emerging markets delivered mixed results. Overall, November highlighted both the opportunities of AI‑driven productivity and the fragility of valuations, leaving investors balancing optimism with caution heading into year‑end.
The NEI perspective
Prospects for December rate cut increased by mid-month, alleviating market jitters: Federal Reserve (Fed), officials’ dovish remarks sharply increased the likelihood of a December rate cut, boosting market optimism. Bond yields fell and equities rebounded, but gains faded amid investor fatigue and rising credit risks. Corporate spreads widened, then narrowed to near-decade lows as caution gave way to renewed confidence.
AI mania and strong Q3 earnings delivery: November 2025 saw rapid AI innovation with major model releases, large-scale partnerships, and record funding. Despite investor concerns about sustainability and bubble risks, AI spending and sector growth remain robust, supported by solid earnings and falling interest rates. The markets saw investor fatigue, citing the increased use of bond issuances to fund expansion and circular partnerships between hyper scalers as risk factors. Bottom line: Investors can benefit from rapid AI growth by diversifying across tech, infrastructure, and related real estate like data centers and energy assets, while steering clear of overvalued sectors.
Resilient earnings growth despite trade and rates uncertainties: U.S. companies reported record growth in revenue and net profit margin, despite tariffs and rising costs. S&P 500 returns were largely driven by earnings growth, especially in technology and semiconductor sectors, aided by AI-driven productivity. Companies maintained pricing power, though income disparity is raising concerns about the durability of consumer-led growth. While record margins signal strength, long-term sustainability remains challenged by structural pressures. Bottom line: Investors should stay positive yet cautious—capitalize on AI growth but manage risks by diversifying globally into defensive areas.