We don’t view the pullback as a bursting stock bubble, but rather a healthy reset following a sizeable advance.
Hawkish commentary from the Federal Reserve wasn’t expected. Policy uncertainty has tended to amplify volatility.
We believe market leadership has the potential to broaden to cyclical sector, value-oriented, and smaller-cap stocks.
Investors had appeared to be steeling themselves for a market pullback. After a nearly uninterrupted 38% advance from the Liberation Day bottom on April 8,1 conversations about a stock bubble and stretched valuations have grown louder. That backdrop may have made last week’s pullback feel inevitable. The unwind was concentrated in mega-cap growth names, the very stocks that powered the rally.2 Ironically, many of these companies, including Netflix, Palantir, Microsoft, and Alphabet, delivered strong earnings beats, yet their shares faltered. To us, this isn’t about broken business models but rather skepticism toward lofty valuations. That’s why we don’t view it as the bursting of a stock bubble but rather as a healthy reset following a sizeable advance.
Looking beyond valuations, policy uncertainty tends to amplify market volatility. While the government shutdown captured much of the recent attention, the greater source of uncertainty has been the split in the Federal Reserve (Fed), which delivered more hawkish commentary than investors anticipated. It may have been easier for the Fed to adopt a less dovish tone during a period when official economic data was unavailable.
The US government has reopened, finally, and data releases will resume, but greater clarity won’t be immediate. The September US data will be released shortly — assuming the government IT department can quickly deal with all the “I’ve forgotten my password” requests. But the October data will likely be highly compromised or lost to time. The data collection process is highly manual, so much can’t be retroactively collected. That’s why we believe October and November’s official data should likely be treated with skepticism.
This leaves an already split Fed still relying on alternative data to make its December decision. Private sector labor market data has pointed to softness but not collapse.3 We think that’s enough to cause the Fed to likely err on the side of further easing. Other data that we trust continues to point to a robust corporate sector. Companies continue to report earnings growth better than consensus forecasts.4
Meanwhile, the end of the shutdown means employees will receive back pay, and federal layoffs will be reversed. It also appears that Transportation Security Administration (TSA) officers, who worked without pay during the shutdown, will receive $10,000 bonus checks. That means federal workers should be able to spend on Thanksgiving, Christmas, and other holidays, but we’ll be watching for signs in consumption data throughout the holiday month.
In our mind, this leaves the backdrop for risk assets still favorable. Yields are low,5 oil prices6 and inflation expectations remain contained,7 our Global Leading Economic Indicator points higher,8 and a US monetary policy easing cycle has commenced. Monetary easing, combined with ample fiscal support next year, should help the US economy regain momentum. In a recovery phase, we believe market leadership is likely to broaden beyond mega-cap growth. Cyclical sectors, including financials (large banks have had strong performance recently9), along with value-oriented and smaller-cap stocks, have the potential to participate more meaningfully, in our view. Additionally, non-US dollar assets stand to potentially benefit as global growth stabilizes and policy divergence narrows.
We remain mindful of valuations, but don’t believe this is a bubble. Instead, we see an opportunity for investors to position portfolios toward better valuation profiles and cyclical exposure as the recovery unfolds.
Date |
Region |
Event |
Why it matters |
|---|---|---|---|
Nov. 17 |
US |
Empire State Manufacturing Survey |
Provides insight into New York manufacturing activity, a leading indicator for the sector |
|
US |
Survey of Professional Forecasters |
Offers expectations on growth, inflation, and unemployment, influencing market sentiment. |
Nov. 18 |
US |
Industrial production and capacity utilization |
Key measure of output and resource use, signals economic strength or weakness |
|
US |
Business Leaders Survey |
Reflects business confidence and outlook, important for investment trend |
Nov. 19 |
US |
New residential construction |
Tracks housing starts and permits, a major driver of economic activity |
|
US |
Federal Open Market Committee (FOMC)Meeting Minutes |
Provides detailed insight into Fed’s policy discussions, critical for rate expectations |
Nov. 20 |
US |
Philadelphia Federal Reserve Manufacturing Survey |
Regional manufacturing health indicator, impacts US dollar and stock markets |
|
US |
Existing home sales |
Shows housing market strength, which influences consumer confidence and spending |
Following the US-Israel strikes on Iran, we offer four possible scenarios for what we could face in the coming weeks and explore the possible reaction of various asset classes.
Markets largely expected last week’s tariff decision and the flare-up in US-Iran tensions, while new US economic data was weaker than anticipated.
On one side, weaker growth makes Fed easing more likely. On the other side, stronger growth supports an intact business cycle. Either can be supportive of markets if inflation stays contained.
Important information
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Image: Mario Martinez / Getty
Some references are US-specific and may not apply to Canada.
All figures are in US dollars unless otherwise stated.
All investing involves risk, including the risk of loss.
Past performance does not guarantee future results.
Investments cannot be made directly in an index.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
The ADP National Employment Report measures nonfarm private payrolls. It is published monthly in collaboration with Moody’s Analytics.
Alpha refers to the excess returns of a fund relative to the return of a benchmark index.
The Bloomberg Magnificent 7 Index is an equal-dollar weighted benchmark of the Magnificent 7 companies: Microsoft, Apple, NVIDIA, Amazon, Meta, Tesla, and Alphabet.
The Composite Index of Leading Economic Indicators, published by the Conference Board, tracks 10 different components that help assess and predict the economic outlook.
Dovish refers to an economic outlook that generally supports low interest rates as a means of encouraging growth within the economy.
Down-market capture refers to the amount of downside in the broader market that is captured by an index.
The Federal Open Market Committee (FOMC) is a committee of the Federal Reserve Board that meets regularly to set monetary policy, including the interest rates that are charged to banks.
The profitability of businesses in the financial services sector depends on the availability and cost of money and may fluctuate significantly in response to changes in government regulation, interest rates and general economic conditions. These businesses often operate with substantial financial leverage.
The Global Industry Classification Standard (GICS) was developed by and is the exclusive property and a service mark of MSCI Inc. and Standard & Poor’s.
The Global Leading Economic Indicator (LEI) is a proprietary, forward-looking measure of the growth level in the economy. A reading above (below) 100 on the Global LEI signals growth above (below) a long-term average.
Gross domestic product (GDP) is a broad indicator of a region’s economic activity, measuring the monetary value of all the finished goods and services produced in that region over a specified period of time.
Growth stocks tend to be more sensitive to changes in their earnings and can be more volatile.
Hawkish describes a central bank or policymaker's preference for a tighter monetary policy, typically to combat inflation.
Inflation is the rate at which the general price level for goods and services is increasing.
The Magnificent 7 stocks refer to Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia, and Tesla.
Monetary easing refers to the lowering of interest rates and deposit ratios by central banks.
A risk asset is generally described as any financial security or instrument that carries risk and is likely to fluctuate in price.
The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
The S&P 500® Index is an unmanaged index considered representative of the US stock market.
Stocks of small- and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale.
A spot price is the current market price at which an asset is bought or sold for immediate payment and delivery.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic, and political conditions.
Treasury Inflation-Protected Securities (TIPS) are US Treasury securities that are indexed to inflation.
A value style of investing is subject to the risk that the valuations never improve or that the returns will trail other styles of investing or the overall stock market.
The opinions referenced above are those of the author as of Nov. 14, 2025. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations.
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