Markets head into November fairly buoyant with stock market dips being bought in anticipation of a year-end (Santa Claus) rally. Earnings have been resilient with nearly 87% of S&P 500 companies having beaten expectations, which is one of the strongest showings in years. Bulls now have seasonality on their side too, as November and December have historically been strong months for equities, especially when the S&P 500 is up 15% or more heading into the end of the year.
Defensives, led by consumer staples, are underperforming cyclicals, but that is also as expected in the current macroeconomic backdrop. Interestingly, sentiment still remains sceptical, with surveys continuing to show more bears than bulls. This likely points to FOMO by those fund managers who need to make up performance and have been underweight equities as they have previously favoured the ‘wall of worry’ side of the argument rather than embracing the AI investment boom, which has powered market returns. That said, recent Big Tech earnings prove that investors are getting more alert to overspending on AI (see Meta’s plunge) versus huge capex effectively fuelling growth (see Alphabet’s surge).
US President Trump’s 12 out of 10 rating of his meeting with President XI has appeased market trade worries for now. Most headlines matched chatter in the run-up, with no roadblock on rare earths, but little discussion on chips and the postponement of US shipbuilding probes. The main question is whether the hawkish Fed rate cut, mixed earnings reaction to big tech and expectations-matching Trump-Xi Summit will slow the risk rally into the strong seasonal part of the year. The US government shutdown will be the longest if it goes past November 5, with both policymakers and investors hoping for a reopen and then the release of the crucial US monthly non-farm payrolls report. This is generally published on the first day of Friday and could show doge cuts and a negative headline number.