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”Markets in Focus
Timely analysis of market moves and sectors of opportunity
BY MATT ORTON, CFA, AND JOEY DEL GUERCIO, CFA1
Market sentiment has recently improved due to optimism about a potential December Fed interest rate cut and renewed confidence in the AI trade, but risks remain.
The Federal Reserve continues to dominate market direction, underscoring the importance of upcoming data releases and Fed communications.
Not all investment opportunities are created equal, especially in AI and technology. Investors should consider high-quality stocks, sector diversification, and incorporating gold exposure as a ballast.
Perhaps it was early holiday cheer or the realization that worries over the durability of the artificial intelligence (AI) trade were overblown, but good vibes prevailed last week as dip buyers returned, and markets recovered their November losses.2
Rising odds of a December rate cut have improved the outlook, particularly after a dovish speech from Federal Reserve Bank of New York President John Williams and the prospect of the current Director of the National Economic Council, Kevin Hassett, being nominated as the next U.S. Federal Reserve (Fed) chair. This week’s economic data is unlikely to change current expectations, and with the Fed now in a blackout window, markets are likely to remain bullish. December is seasonally one of the strongest months of the year, and assuming that is the case this year, technology and communication services are likely to lead once again.
The consolidation in November provided entry points in some of the secular leaders around the AI capital expenditure (capex) trade, which remains on a solid fundamental footing. Small caps pulled back, and there are reasons to be optimistic about the prospects of smaller companies heading into 2026, following the most recent earnings season. Perhaps the fear bubble around the demise of the AI trade popped last week, leading to the reversal, but that doesn’t mean risks are gone. Systematic positioning has reset, and while momentum fragility shows early signs of recovery, sentiment remains delicate with technical air pockets still present.
For better or worse, the Fed remains the dominant force in the markets, which is apparent in the reaction to Williams’ surprisingly dovish speech, marking a V-shaped bottom in the consolidation from the October highs. While this week’s economic data is light, we will see the Institute for Supply Management (ISM) services and manufacturing PMI reports, as well as the monthly ADP® National Employment report. The only data point between now and the December Federal Open Market Committee (FOMC) meeting that could change the current presumption of a cut is a significant increase in Personal Consumption Expenditures (PCE) Price Index, which is unlikely given the input components we’ve already observed. A December rate cut should not come as a surprise, given that the unemployment rate has risen for the third straight month and signs of further layoffs are looming. According to the Indeed Wage Growth Tracker, an alternative data source, wage momentum is also cooling, not re-accelerating. Business inflation expectations remain unchanged from a year ago, while shelter inflation should decrease as rental costs move lower.
While we anticipate the Fed to deliver a rate cut in December, forward guidance will be just as important for the market — both the future pace of rate cuts and the ultimate destination matter quite a bit. It wouldn’t be surprising if Fed Chair Jerome Powell kept the door open to a January cut. That said, the hurdle is rising, and markets may react poorly to any hawkish pivot from the Fed. If Powell comes across as too hawkish, that would signal the Fed confirming that it prioritizes a fading inflation scare over weakening labor markets and tightening credit conditions. All of this makes this month’s payroll data important. These possibilities highlight the importance of thinking about maintaining a balanced portfolio and prioritizing high-quality stocks with durable, long-term growth potential rather than solely following the direction of interest rates.
Skepticism can be healthy for the markets, but the wave of AI doubters grew louder than fundamentals warranted. Still, some cooling was necessary in the frothiest, lower-quality corners of the market that were flying close to the sun. The pullback also helped to reset positioning and force investors to look at other parts of the market, albeit briefly. In this environment, themes and questions we’re focused on include:
December has highest hit rate for any month
S&P 500 Index monthly return seasonality since 1928(n=98)
Source: Bloomberg, as of 11/28/2025.
Not all AI dips create equal opportunities. The AI fear bubble’s pop creates potential opportunities for investors looking to add risk back to portfolios. However, the pain of this dip should be a reminder that not all opportunities are created equally — being selective is important when buying AI dips. Examining the biggest bottlenecks cited in quarterly earnings calls is a good place to start — power generation, grid modernization, electric equipment, and hyperscaler data center construction. Some of the most speculative parts of the market around quantum or pre-revenue nuclear small modular reactor companies might be worth keeping on a watchlist for now, rather than waiting, given how unpredictable many of these companies are. One standout area for diversification sits with the Software as a Service (SaaS) space. Many of these companies performed poorly in 2025 and, as such, are priced for consumer staples-like growth. While this may be too far, this space looks interesting heading into 2026, given the valuation compression and likelihood for double-digit growth over the next 12 to 18 months.
Can the recent market broadening continue? Dispersion was incredibly high in November, with the gap between the top- and bottom-performing sectors coming in at 13.5%, with healthcare at 9.14% versus information technology at -4.36%. Although it will be difficult to repeat the catch-up trade in December, healthcare complements AI exposure. Biotechnology has been a favored part of the market, particularly among smaller-cap names. Financials have also held up well, offering some added diversification potential for portfolios. We believe that large banks and capital market companies have the potential to perform well, given economic fundamentals and increased deal activity. These sectors, along with international markets, offer potential opportunities for portfolio diversification. The winners across Europe, Japan, and the emerging markets are quite different, which is why we’ve seen these markets move on idiosyncratic catalysts recently rather than fears over an AI bubble.
Gold as ballast. Our optimism for gold remains. The sell-off from the October highs resembled a classic consolidation within a broader bull trend, and gold has regained momentum despite recent volatility in the broader market. Persistent central bank buying continues to provide a strong foundation for gold prices, while inflows into gold exchange-traded funds are rising again. Dip-buyers are re-entering the market, and gold miners are breaking out of their consolidation range. With geopolitical risk resurfacing and debasement concerns lingering, we remain constructive on gold and miners as a stabilizing ballast against pro-risk positioning.
Gold reset nicely in November
Price of gold per troy ounce, 2025 year to date
dateSource: Bloomberg, as of 11/28/2025.
This week focuses on the consumer as investors parse through numbers from Black Friday and look for trends from Cyber Monday. The federal government also clears more of its data backlog, highlighted by the delayed September PCE report, ISM surveys, and a fresh round of labor-market indicators ahead of the upcoming FOMC meeting. While the Fed is in blackout mode, Powell and Fed vice chair for supervision Michelle Bowman are slated to speak, precluding remarks on economic outlook or monetary policy. We cap off the week with a preliminary reading of the University of Michigan Index of Consumer Sentiment.
Overseas, the focus on inflation continues in Europe with the euro-area, Swiss, and Swedish readings. A steady lineup of European Central Bank (ECB) speakers, including ECB President Christine Lagarde, is also ahead. On the geopolitical front, European Union defense ministers meet in Brussels to discuss military support for Ukraine. The U.S. presidential envoy, Steve Witkoff, is expected to visit Moscow. Asia’s economic calendar centers on growth and price data, including gross domestic product readings from Australia and South Korea, consumer price index information from Indonesia and Taiwan, and Japan’s latest capital and household spending figures.
1 Matt Orton, CFA, is Chief Market Strategist at Raymond James Investment Management. Joey Del Guercio, CFA, is Research Associate for Market Strategy at Raymond James Investment Management.
2 Unless otherwise indicated, all data cited is sourced from Bloomberg as of Nov. 28, 2025.
Risk Information:
Investing involves risk, including risk of loss.
Diversification does not ensure a profit or guarantee against loss.
Disclosures:
Index or benchmark performance presented in this document does not reflect the deduction of advisory fees, transaction charges, or other expenses, which would reduce performance. Indexes are unmanaged. It is not possible to invest directly in an index. Any investor who attempts to mimic the performance of an index would incur fees and expenses that would reduce
return.
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Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.
Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks.
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Definitions
ADP® National Employment Report™ — A monthly report from the ADP Research Institute® in close collaboration with Moody’s Analytics. The ADP® National Employment Report provides a monthly snapshot of U.S. nonfarm private sector Employment based on actual transactional data.
Artificial intelligence (AI) — A technology that enables computers and machines to simulate human learning, comprehension, problem solving, decision making, creativity and autonomy. AI 2.0 refers to companies in industries that are poised to benefit from the growth of AI because they provide either the components, services, or power needed to run AI servers.
Ballast — Characteristics, factors or trading strategies that mitigate volatility or provide stability to a security or group of securities.
Capital expenditures/capex — Monies used by a company to buy, improve, or maintain physical assets such as real estate, facilities, technology, or equipment, and may include new projects or investments.
Consumer Price Index (CPI) — Measures the change in prices paid by consumers for goods and services. The U.S. Bureau of Labor Statistics bases the index on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 75 urban areas across the country from about 6,000 households and 22,000 retailers.
Debasement — as it relates to currency, the lowering of value of a particular currency.
Dispersion — The range of outcomes realized in different areas of a financial market or the potential outcomes of investments based on historical volatility or returns.
Exchange-traded fund (ETF) — A type of security that tracks a market index, sector, commodity, or other assets, but which can be bought or sold on a stock exchange the same way a regular stock or other security can. An ETF can be structured to track a wide variety of securities, including stocks, bonds, individual commodities, diverse aggregations of securities, and specific investment strategies.
Federal Open Market Committee (FOMC) — A committee of the U.S. Federal Reserve that sets monetary policy. It consists of 12 members: the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year at which it reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.
Gross domestic product (GDP) — The total value of goods and services provided in an economy during a specified period, often one quarter or one year. Also known as headline GDP, nominal GDP is not adjusted for inflation.
Guidance — Statements from the managers of publicly traded companies that indicate whether they expect to realize near-term profits or losses and why.
Hawkish, dovish, and centrist — Terms used to describe the monetary policy preferences of central bankers and others. Hawks prioritize controlling inflation and may favor raising interest rates to reduce it or keep it in check. Doves tend to support maintaining lower interest rates, often in support of stimulating job growth and the economy more generally. Centrists tend to occupy the middle of the continuum between tight (hawkish) and loose (dovish) monetary policy.
Hyperscalers — The largest cloud computing providers that can provide massive amounts of computing resources and storage at enterprise scale.
Indeed Wage Growth Tracker — measures the average year-on-year percentage changes in wages and salaries advertised in job postings on Indeed. It serves as a real time temperature of the market for employers looking to hire new workers, and may be a leading indicator of broader measures of wage growth.
Institute for Supply Management (ISM) manufacturing Purchasing Managers’ Index (PMI) — A measure of the prevailing direction of economic trends in the manufacturing sector. It consists of an index summarizing whether market conditions as reported in a monthly survey of supply chain managers are expanding, staying the same, or contracting.
Institute for Supply Management (ISM) Services ISM® Report on Business® — A survey based on data compiled from purchasing and supply executives in a wide variety of industries nationwide. Survey responses reflect the change, if any, in the current month compared to the previous month in supplier deliveries along with seasonally adjusted business activity, new orders, and employment.
Market capitalization, or market cap — The total dollar market value of a company’s outstanding shares of stock.
Personal Consumption Expenditures (PCE) Price Index — a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services. The PCE price index, released monthly by the U.S. Department of Commerce Bureau of Economic Analysis, is known for capturing inflation or deflation across a wide range of consumer expenses and reflecting changes in consumer behavior.
Positioning — Assessments of whether professional investors are, on the whole, bullish or bearish on a particular security, industry, sector, market capitalization or other area of the market, as reflected by the extent to which they are invested in the area of the market in question.
Pullback — A temporary pause or drop in the price of a security that previously had been rising.
Risk-on — Market sentiment that is typically fueled by a strong growth environment in which good news supports a bullish outlook and investor expectations of favorable risk/reward ratios.
Software as a Service (SaaS) — a cloud computing service model that delivers software applications over the internet. Users can access these applications through a web browser or an app, usually on a subscription basis.
Troy ounce — a unit of weight used primarily for measuring precious metals such as gold, silver, and platinum.
University of Michigan Consumer Sentiment Index — based on monthly telephone surveys in which at least 500 consumers in the continental United States are asked 50 questions about what they think now and what their expectations are for their personal finances, business conditions, and buying conditions. Their responses are used to calculate monthly measures of consumer sentiment that can be compared to a base value of 100 set in 1966.
Indices
S&P 500 Index — Measures changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividend reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.
M-848232 Exp. 4/01/2026
