“
”Markets in Focus
Timely analysis of market moves and sectors of opportunity
BY MATT ORTON, CFA, AND JOEY DEL GUERCIO, CFA1
Sentiment seems overly bearish and many high-quality stocks that posted strong earnings results and guidance appear to be deeply oversold.
November’s pullback appears to have been fueled both by a broad lack of investor conviction and, particularly last week, by a range of market structure dynamics that had little to do with fundamentals.
Playbook areas of focus include artificial intelligence beneficiaries beyond semiconductors; select pockets of value in global equities; and a range of areas in the broader market where results still need to catch up with potential.
The bull market has been bending during the past few weeks, but it is not broken.
Consequently, there are a lot of things that investors can do now, especially after the week that we’ve just had, to make sure their portfolios are set up for 2026 and to have sufficient exposure to what we would argue is a good fundamental story for the market.
No question, last week’s price action was challenging, as was isolating the key driver of Thursday’s big downward reversal that caught most investors off guard. Significant damage has been inflicted, particularly across the technology and artificial intelligence (AI) complex, with leadership faltering despite strong fundamental earnings results.2
While there are a number of culprits for November’s pullback — from growing questions around the sustainability of the AI capital expenditures (capex) trade to continued credit jitters to a more hawkish U.S. Federal Reserve (Fed) — we would argue the root cause stems from a lack of investor conviction. And this lack of conviction has made it easier to lock in gains and ask questions later, pausing the buy-the-dip mentality that has seized upon all the shallow pullbacks we’ve had since the April 8 lows. Leverage in the system through elevated margin levels, particularly in crypto where bitcoin is down more than 30%, has led to forced selling, further pressuring the market.
The good news is that sentiment seems overly bearish and many high-quality stocks that posted strong earnings results and guidance appear to be deeply oversold. Friday’s price action was certainly encouraging, but we need to see follow-through. A further breakdown from here coupled with increased volatility could lead to additional systematic selling and create another unpleasant holiday season à la 2018.
We remain biased to the upside and continue to look for oppor-tunities for investors to put money to work to broaden portfolios, particularly given the strong fundamental backdrop. Don’t forget that economic growth remains above trend and we’ll get tailwinds from the One Big Beautiful Bill Act in 2026. Meanwhile, third-quar-ter earnings were well ahead of expectations with the best breadth we’ve seen in years and increasing profitability.
We’ve said for the past few weeks that the initial catalyst for the market pullback was related to the Fed, notably a reassessment of the likelihood of a December interest rate cut and the ultimate destination of the federal funds rate. The October Federal Open Market Committee (FOMC) meeting notes certainly didn’t help, bluntly warning that “many” Fed participants thought it would be appropriate to leave rates unchanged for the rest of the year. But Friday’s reversal also aligned with Federal Reserve Bank of New York President John C. Williams’ dovish speech where he revealed that he favored another “near-term” cut. Ultimately, Fed Chair Jerome Powell will need to decide where he wants to steer the very fractious committee. There is still a chance that we get a cut in December.
Unfortunately, the government shutdown derailed any chance of getting timely jobs or inflation data, forcing the Fed to rely on second-tier measures in the coming weeks. The November ADP® National Employment Report is due on Dec. 3, and the October Job Openings and Labor Turnover Survey (JOLTS) arrives on Dec. 9. The latter’s detail on “hires” minus “separations” is akin to the non-farm payrolls number. A clearly strong or weak JOLTS report could tip the balance for Fed fence-sitters who want to see a bit more data, so we’re likely to see volatility persist until we’re through these data releases and ultimately the December FOMC meeting on Dec. 9-10.
Regardless of the ultimate catalyst for the selloff, market structure dynamics arguably played the most important role in driving last week’s equity price action, certainly more than concerns over a broader loss of confidence in fundamentals going forward. As in “Murder on the Orient Express,” there was no shortage of suspects:
Extreme long positioning coupled with an increase in volatility triggered systematic selling by commodity trading advisors (CTAs), volatility control funds, and other programmatic traders.
Additionally, there was an extreme reach for hedging, with Thursday marking the second-highest volume of puts ever.
The leveraged exchange-traded fund (ETF) complex also contributed to a very large short gamma profile for dealers, which can be particularly destabilizing when large-cap tech and semiconductor stocks are at the epicenter of the move since they are such large weights across a breadth of products.
Finally, in prior periods of systematic de-risking, a buy-the-dip mentality from retail traders often helped. But last week’s malaise was fed by the endless noise around a potential AI bubble as well as by added pressure across the crypto complex and margin calls coming in due to the weakness in equities from prior weeks.
Momentum as a factor is now down nearly 30% from its peak and is barely up on the year. We started to see buyers return to the market on Friday, and many companies with the highest earnings revision ratios are trading significantly below their all-time highs. There are certainly potential opportunities for investors to start some holiday shopping early across the market.
The fourth-quarter slump: De-risking, not driven by fundamentals
Quarter-to-date return attribution by S&P 500 sector
Source: Bloomberg, as of 11/21/2025.
Another strong S&P 500 earnings season
FactSet consensus estimates versus third-quarter earnings season actual results
Source: FactSet, as of 11/21/2025. Numbers in parentheses represent the number of companies that have reported earnings so far and the total number of companies in the sector.
Watch for opportunities amid these oversold conditions. That said, we believe in being prudent and respecting the charts. We remain in a structural uptrend despite what we would argue is a needed pullback to get rid of the froth that has accumulated across the market over the past six months. Fundamentals are strong, the economy is supportive, and NVIDIA’s earnings should short-circuit the near-term concerns of an AI bubble.3 The recent washout in positioning, excessive volatility, robust earnings momentum, and the still-alive hope for another Fed rate cut suggests to us that stocks remain a buy. Here are a few areas where we are looking for opportunities and what we’re paying attention to from a risk perspective:
Focusing beyond semiconductors in the shifting sands of the AI trade. The NVIDIA results confirm that AI capex remains strong. With third-quarter earnings up 59% year over year, NVIDIA continues to be one of the greatest beneficiaries from the ramp up of AI graphics processing unit (GPU) capacity. The hyperscalers also remain capacity-constrained, a key theme from their earnings calls. With capacity expansion — and not end demand — still the key constraint on growth, the AI capex boom is unlikely to end soon. While this should continue to benefit the semiconductor complex, the real bottleneck sits with the hard infrastructure and ability to use and power it. It’s also clear that the revenue growth of the hyperscalers is going to be determined by the pace at which they can build and bring their data centers into operation. With many data center companies selling off over the past few weeks, this area seems as interesting as any time since the DeepSeek drop in January, especially since earnings growth has been strong and committed project backlogs continue to grow. NVIDIA also specifically called out energy supplies as a critical issue going forward. Companies across the power generation and distribution spectrum should benefit from spending from both federal and hyperscaler projects. These companies, many of which sit in the mid- and small-cap market, offer entry points that look particularly interesting and fit squarely in the “AI 2.0” basket of companies that we like heading into 2026.
Leaning into weakness overseas. International markets have fared better than U.S. equities given less exposure to the AI theme, particularly across developed international markets. Japan also faces some specific challenges around fiscal policy and a geopolitical spat with China, but that has opened a potential entry point for investors who may have been underexposed this year. Earnings growth prospects across the Europe, Australasia, and the Far East (EAFE) complex are improving, and we would look to this part of the market for value exposure, which would complement a growthier U.S. overweight position. Emerging markets also have held up relatively well and there remain potential opportunities, though paying attention to idiosyncratic country risk is important. Broadly speaking, emerging markets account for about 40% of global gross domestic product (GDP) and drive nearly 70% of real GDP growth, but they make up only 11% of the weight in the MSCI All-World Country Index (ACWI). Clearly, there is room for expansion. While the strong returns this year, in part driven by a re-rating, have dented the deep value argument around emerging markets, they remain favorably priced on a relative basis and are supported by multiple growth drivers such as AI, commodities, high-tech manufacturing, infrastructure, and growing consumerism.
Mind the bad breadth. While so much of the narrative has been focused on the “AI bubble” and whether it’s starting to pop, we’re still seeing strength across some of the mega-cap complex. The average stock broke down last week, with the S&P 500® Equal Weight Index gapping below its Oct. 10 lows. Financials have behaved poorly, and we’re seeing a lack of leadership from the industrial complex coupled with weakness from the average tech stock, all pressuring the broader market. We would be mindful of a further breakdown and would hesitate to buy dips aggressively until we see stabilization from prior leadership. The outperformance of healthcare aligns with the sector’s positive earnings growth, but we remain skeptical of the bounce seen broadly across the consumer space. We also would like to see small caps rebound, especially since this part of the market is a better barometer for what’s happening in the larger economy. Biotechnology has been strong and could remain a tactical overweight, but we need to see strength return to the broader small-cap market.
The U.S. government is clearing out the data backlog from its shutdown, making this week a bit busier than usual. The delayed September retail sales, Producer Price Index, and durable goods reports will be released early this week. The Federal Reserve’s Beige Book will provide additional insights into the health of the U.S. economy before the blackout period starts over the weekend ahead of the FOMC Dec. 9-10 policy meeting. It’s a quiet week for Fed commentary with no speakers on the schedule so far.
Overseas, UK Chancellor Rachel Reeves will deliver the Autumn Budget on Wednesday following months of speculation about potential tax increases. Preliminary regional euro-area inflation data will provide a good indication as to where the bloc-wide figure will land the following week. The ifo Institute Business Climate Index for Germany also is worth watching. In Asia, the Reserve Bank of New Zealand is widely expected to cut the official cash rate by 25 basis points to 2.25%. Japan sells 40-year bonds after the cabinet approved the largest round of extra spending since the pandemic.
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. 21, 2025.
3 This is not a recommendation to purchase or sell the companies or investment products mentioned herein.
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.
International investing presents specific risks, such as currency fluctuations, differences in financial accounting standards, and potential political and economic instability. These risks are further accentuated in emerging market countries where risks can also include possible economic dependency on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, and liquidity risks related to lower trading volumes.
Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.
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.
Attribution — Factors, circumstances or events that affect the performance or returns of an investment.
Autumn Budget — An annual report to the UK House of Commons that looks at the nation’s economic situation, economic forecasts, and public finances.
Basis points (bps) — Measurements used in discussions of interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%.
Beige Book — Officially known as the U.S. Federal Reserve’s Summary of Commentary on Current Economic Conditions by Federal Reserve District, the Beige Book is published eight times per year. The summary gathers anecdotal information on current economic conditions through reports from bank and branch directors and interviews with key business contacts, economists, market experts, and other sources.
Breadth — The relationship between the median and the mean of a market index. When a few data outliers result in a mean that is substantially larger (or smaller) than the median of the full data set, then the performance of the entire index is being driven by a “narrow” selection of companies. An index supported by “broad” market movements is one where the median is closer to the mean. Market breadth is said to narrow when a smaller number of more extreme outliers drive the mean of an index further from its median.
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.
Cash rate — The interest rate set by the Reserve Bank of New Zealand for overnight lending to commercial banks and the benchmark rate for other interest rates in the country.
Commodity trading advisor (CTA) — An investment professional or firm that provides client-specific advice on buying and selling futures contracts.
Consensus estimates — Forecasts of a public company’s projected earnings, the results of a particular industry, sector, geography, asset class, or other category, or the expected findings of a macroeconomic report based on the combined estimates of analysts and other market observers that track the stock or data in question.
Conviction — A market participant’s confidence in particular investments or the likelihood that particular outcomes will take place. High-conviction investments represent what participants consider to be their best bets for performance for a given outlook or period.
Credits — Fixed income securities such as corporate bonds, mortgage- or asset-backed securities, municipal bonds, or emerging market bonds.
DeepSeek — A Chinese artificial intelligence startup that in January 2025 became a leading free downloadable app in the United States. This followed DeepSeek’s announcement that its AI model performed as well as market-leading models and that it was developed at a significantly lower cost. This led to a selloff of well-known U.S. technology stocks on Jan. 27, 2025.
Dividend payers — Companies that distribute a portion of their profits to shareholders in the form of a dividend.
Drawdown — A decline in the returns of a security or group of securities, as measured over a period from the peak of returns to their trough.
Durable Goods Orders — Data compiled from the U.S. Census Bureau’s Manufacturers’ Shipments, Inventories, and Orders (M3) survey, which is a voluntary survey that provides statistics on a calendar-month basis for manufacturers’ value of shipments, new orders (net of cancellations), end-of-month order backlog (unfilled orders), end-of-month total inventory (at current cost or market value), and inventories by stage of fabrication (materials and supplies, work-in-process, and finished goods).
Earnings per share (EPS) — A company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.
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.
Factor investing — An approach to investing that selects securities based on characteristics associated with higher returns. These characteristics, or factors, can be macroeconomic factors or style factors. Macroeconomic factors are focused on broad risks across asset classes and include the rate of inflation: growth in gross domestic product; and the unemployment rate. Style factors include differences in growth versus value stocks; market capitalization, and industry sector. Factor performance refers to a focus on performance of securities within a particular factor or between groups of different kinds of factors.
Federal funds rate — The target interest rate set by the Federal Open Market Committee of the U.S. Federal Reserve. The target is the Fed’s suggested rate for commercial banks to borrow and lend their excess reserves to each other overnight.
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. The FOMC observes a blackout period, which begins at midnight of the second Saturday before each meeting. During the blackout periods, committee members do not make public comments about macroeconomic developments or monetary policy issues.
Fiscal policy — The tax collection and spending a government uses to influence its country’s economy.
Forward earnings per share — An estimate for the next period’s earnings per share for a company’s profit divided by the outstanding shares of its
common stock.
Forward price-to-earnings / forward P/E — A version of the ratio of price to earnings that uses forecasted earnings for the P/E calculation. The earnings used in this ratio are an estimate and therefore are not as reliable as current or historical earnings data.
Graphics processing unit (GPU) — A type of electronic circuit used in a wide range of applications that include parallel processing, graphics and video display, and artificial intelligence.
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. Real GDP is GDP 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.
Hedge — An investment or investment strategy that is designed to lessen the potential for losses in other investments. The price of an investment considered to be a hedge often moves in the opposite direction of the prices of the investments being hedged.
Hyperscalers — The largest cloud computing providers that can provide massive amounts of computing resources and storage at enterprise scale.
ifo Institute Business Climate Index for Germany — A monthly survey of about 9,000 firms in manufacturing, the services sector, and construction, plus wholesale and retail sales about their characterization of their current business and their expectations for the next six months. It is published by the ifo Institute for Economic Research, based in Munich.
Job Openings and Labor Turnover Survey (JOLTS) — A program that produces monthly data on job openings, hires, and separations compiled by the U.S. Bureau of Labor Statistics. The survey’s job openings rates consider month-to-month changes in the number of job openings reported on both a state and national level.
Leverage — The use of debt to enhance returns from an investment.
Long position — The purchase of a security with the expectation that it will rise in value, reflecting a bullish attitude.
Macroeconomic — Relating to the branch of economics that focuses on seeking to understand the interactions between the markets, businesses, governments, and consumers that make up an entire economy.
Margin call — A demand by a broker that an investor to deposit additional funds or securities in a margin account to cover possible losses caused by a decline in value of the investor’s securities.
Margin levels — A risk management indicator that tracks the ratio between an investor’s equity and the margin being used in the investor’s open positions.
Market capitalization, or market cap — The total dollar market value of a company’s outstanding shares of stock.
Mega-cap stocks — The largest publicly traded companies as measured by market capitalization. Generally, this refers to companies with market capitalizations over $200 billion.
Megatrend — A widespread and long-term macroeconomic, technological, social, environmental, political, or other change that may develop slowly at first but that has a major, ongoing impact once it gets underway. Megatrends are distinct from smaller trends in business, economic, or other spheres of activity that have less far-reaching or enduring effects.
Momentum stocks — Stocks that benefit on the continuance of an existing market trend and tend to be bought by investors as they are rising and with the intention of selling them when they look to have peaked.
Monetary policy — The decisions made by central banks to raise or lower benchmark interest rates or otherwise tighten or loosen credit to influence an economy’s growth, inflation, or employment levels.
Multiple — A measure of a company’s value based on the ratio of its current share price to its earnings per share. This ratio is known as the price-to-earnings ratio, or P/E.
Multiple expansion — When a stock’s multiple rises, in some cases faster than its fundamental value. Multiple expansion creates arbitrage opportunities for investors who have bought the stock at the lower multiple value.
One Big Beautiful Bill Act — An act passed and signed into law in July 2025 that raised the U.S. debt ceiling by $5 trillion, made permanent tax cuts created by the Tax Cuts and Jobs Act of 2017, and changed a wide range of other aspects of federal tax policy, making changes to health insurance legislation, phasing out or reducing credits for clean energy production or use, and removing tax benefits for illegal immigrants.
Oversold — A security or group of securities believed to be trading at a level below its or their intrinsic or fair value.
Overweight — A portfolio position in an industry sector or some other category that is greater than the corresponding weight level in a benchmark portfolio.
Payroll report, officially known as the Employment Situation Summary — A monthly U.S. Bureau of Labor Statistics (BLS) report tracking nonfarm payroll employment and the national unemployment rate, with data on changes in average hourly earnings, and job trends in public and private sectors of employment. The report is based on surveys of households and employers.
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.
Price action — The movement of security prices over time.
Price-to-earnings (P/E) — A ratio that measures a company’s current share price relative to its earnings per share. The ratio is used to help assess a company’s value and is sometimes referred to as the price multiple or earnings multiple.
Producer Price Index (PPI) — A report published monthly by the U.S. Bureau of Labor Statistics that measures the average change over time in the selling prices received by domestic producers for their output.
Pullback — A temporary pause or drop in the price of a security that previously had been rising.
Put option — A financial contract that gives the buyer of the option the right to sell an underlying asset at a specified price within a specified time frame.
Re-rating — When the market begins to assign a higher valuation multiple to a stock in light of an improving outlook for the company’s performance.
Retail Sales Report — A monthly U.S. Census Bureau report that seeks to provide current estimates of sales at retail and food services stores and inventories held by retail stores, based on a survey of about 13,000 retail businesses, supplemented by estimates for other employers.
Short gamma — A options risk in which price movements in the underlying asset of an option could cause losses that compound as the value of the underlying asset falls.
Short position - A trading technique in which an investor sells a security with plans to buy it later.
Tactical trading — Relatively short-term investing decisions made in response to expected trends or changes in the market based on fundamental and technical analysis.
Tailwind — An event or market force that exerts a positive influence on an investment’s performance.
Total return — When measuring performance, total return is the actual rate of return of an investment or a pool of investments over a given period of time. Total return includes interest, capital gains, dividends, and distributions realized over the specified period. Total return accounts for two categories of return: income including interest paid by fixed-income investments, distributions, or dividends and capital appreciation, representing the change in the market price of an asset.
Value investing — A strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
Volatility control fund — A fund that uses investment strategies that seek to mitigate the risk posed by market fluctuations by adjusting the portfolio’s exposure to certain securities as their levels of volatility change.
Washed out / washout — A state where market sentiment displays no clear trend or enthusiasm for particular areas of the market.
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.
S&P 500® Equal Weight Index — An index that includes the same constituents as the capitalization-weighted S&P 500 Index, but each company in the S&P 500 Equal Weight Index is allocated a fixed weight.
MSCI ACWI (All Country World Index) ex USA Index — A stock index that captures large- and mid-cap representation across 22 of 23 developed markets countries (excluding the United States) and 24 emerging markets countries. With 2,511 constituents, the index covers approximately 85% of the global equity opportunity set outside the United States. Developed markets countries include Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the U.K. Emerging markets countries include Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI EAFE (Europe, Australasia, and the Far East) Net Index measures the performance of performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the United States and Canada. The MSCI EAFE Net Index subtracts any foreign taxes applicable to U.S. citizens but not applicable to citizens in the overseas country.
The MSCI Emerging Markets Index measures the performance of large and mid-cap stocks across 24 emerging markets (EM) countries: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. With 1,189 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
M-845647 Exp. 3/24/2026
BY MATT ORTON, CFA, AND JOEY DEL GUERCIO, CFA1
The markets remain resilient, with sector rotation into energy, healthcare, and financials helping to offset weakness in technology and AI stocks.
Uncertainty remains elevated due to delayed economic data, set to release this week, plus hawkish U.S. Federal Reserve signals and rising volatility.
Gold and international exposure offer potential opportunities for investors looking to diversify their portfolios in addition to rotational trends.
Markets remained fragile last week as a cross-current of shifting expectations, coupled with rising volatility and increased correlation across the artificial intelligence (AI) complex, weighed on sentiment.2
However, while many of this year’s biggest AI winners dropped meaningfully — in many cases over 10% — from recent all-time highs, the broader market has remained quite resilient. The S&P 500 Index is down just over 2%, with a rotation into energy, healthcare, and financials helping to offset underperformance across technology and communication services sectors.
The broader market still hasn’t seen anywhere near a 5% pullback since the April 8 lows — an incredibly strong rally — as earnings growth and profit margins have continued to deliver positive surprises. While bears are trying to latch onto any negativity surrounding the dominant AI trade, earnings growth and strong supply chain guidance across various sectors and industries indicate that investors should continue to use downside opportunistically. Further, our preference to add balance around a core allocation to the dominant growth themes proved to insulate us from the downside since the high on Oct. 28. While the S&P 500 is down 2.28% over this period, the MSCI EAFE (Europe, Australasia, and the Far East) Net Index is flat, and gold has gained over 3%. Headwinds from more hawkish comments from U.S. Federal Reserve (Fed) officials, along with the anticipated data deluge now that the government has reopened, increases the risk of volatility this week. NVIDIA earnings also add to that potential volatility,3 but we believe that investors should consider leaning into the winners of the AI capital expenditure (capex) cycle and balance exposure appropriately.
Volatility on the rise as investors await months of economic data
Equity and rate volatility proxies,2025 YTD
Source: Raymond James Investment Management, Bloomberg. As of 11/17/25.
While AI has captured much of the spotlight amid recent market volatility, the real drivers to watch are the backup in interest rates and the U.S. dollar’s reversal.
In the absence of economic data, the market has reacted to the increasingly hawkish Fed commentary as seen in the 10-year U.S. Treasury yield’s increase, which aligns with recent equity market softness. A move toward 4.20% on the 10-year yield could make it difficult for equities to regain traction, while rising volatility may trigger more position adjustments by fund managers locking in gains and prompt selling from systematic market players.
Unfortunately, this week’s very delayed September payroll data, due on Thursday, won’t serve as a catalyst as it is already quite stale. Furthermore, the market may be disappointed with the amount of data that will be released ahead of the December Federal Open Market Committee (FOMC) meeting. The U.S. Bureau of Labor Statistics faces significant logistical challenges in handling the October jobs report, including the household survey portion (i.e., the unemployment rate) that may not be released and October payroll data that will likely roll into the following month. It’s likely that we will continue to be flying through dense fog from an economic perspective, making it important for investors to focus on corporate fundamentals to manage risk and understand where buying opportunities may exist.
Positioning has normalized over the past few weeks. Exposure is off the extremes seen in October, setting up a more constructive backdrop for equities to find their footing and potentially stage a rally into year-end, assuming macroeconomic data cooperates. Part of the derisking was warranted, with a meaningful pullback in the most-shorted names and companies with little or no revenues. There was also a derisking from the systematic volatility target funds and commodity trading advisors (CTAs) — this should taper off absent another jump in volatility. The good news is that we’ve seen retail investors resume their “buy-the-dip” mentality, with $13 billion of U.S. equity exchange-traded fund (ETF) inflows last week and rolling 1-month U.S. equity ETF inflows at $60 billion, a post-Liberation Day high. It’s hard to be bearish when we’ve seen the level and breadth of earnings growth from third quarter results, even down the market capitalization spectrum, where expectations have also held steady.
It’s been a challenging November for many investors because of the equity market leadership’s underperformance and increased rotation. This isn’t a breakdown in leadership, but rather a lightened positioning heading into a potentially busy economic data calendar. Mega-cap stocks remain in a long-term upward trend, and weakness across technology and AI has been broad-based. Conversely, the strength across sectors like energy, healthcare, and financials is encouraging. Outside of yields pushing higher, another key near-term risk is the recent rewidening of credit spreads, which could be a leading indicator for caution spreading to other risk markets. We remain optimistic on the bull market and continue to favor building balanced portfolios with a focus on several primary themes:
Rotation opportunities. Since the market peaked on Oct. 28, leadership has been rotating beneath the surface. We’ve discussed some of the sectors outside the AI trade that could balance risk in portfolios given their strong earnings and relatively attractive valuations. It is encouraging to see renewed strength in areas of healthcare, including pharmaceuticals and biotechnology — long viewed as attractive opportunities, especially among smaller-cap names. Equipment companies also have moved up significantly following strong earnings releases and may be staging a longer-term reversal. Most encouraging is the relative outperformance of financials, which has been strong all year. Earnings growth across all industry groups of the financials sector surprised to the upside, and price action has followed the beats. Finally, energy has been strong despite negative earnings growth for the quarter.
Can international markets sustain their outperformance? It’s been the strongest year for international markets relative to the United States in more than a decade. While earnings growth looks to have inflected higher across international markets, there is still meaningful dispersion with U.S. markets. Earnings per share (EPS) growth across Europe is running at -1%, much better than expected, but still far from the 13%+ growth seen in U.S. large caps and the single-digit growth in U.S. small caps. Meanwhile, markets like Japan are positive and showing strong revision ratios. There are opportunities to find exposure to markets like Europe and Japan, where earnings and performance are strong year to date. Europe, where markets are less exposed to the technology run-up, has remained resilient this month. However, emerging markets’ growth is likely to catch up, perhaps exceeding the U.S. in the coming years. While South Korean and Taiwanese markets have been notably strong this year due to their AI exposure, there’s still potential opportunity in China and India, where earnings growth is pushing higher. While it is unknown if international markets will continue to outperform U.S. stocks, the degree of U.S. underperformance is unlikely to repeat, given the overseas growth drivers and the diversification to some of the key themes that have driven U.S. markets this year.
Managing risk with portfolio ballasts. We continue to believe that investors should consider adding gold to complement traditional equity and fixed income portfolios. After reaching a high of $4,358 per ounce on Oct. 17, the CME Group’s front–month gold price has pulled back meaningfully, but looks to be finding support. It appears that trend followers are rebuilding long gold positions after previously stepping out over the past few weeks, which has helped to stabilize prices. Key drivers of optimism around gold remain: expectations of U.S. dollar debasement expectations persist; central bank demand across many emerging markets is steady; and strong speculative interest continues as investors seek a hedge against risks ranging from U.S. and European debt sustainability to questions about the Federal Reserve’s independence and credibility. Concerns also remain that tariff-related trade disruptions could lead to supply chain problems.
It’s going to be a busy week with critical earnings reports and the restart of economic data in the United States.
Given the increasingly shaky market sentiment, particularly around AI, NVIDIA’s earnings report on Wednesday carries a particularly heavy weight. Strong results and upbeat guidance could give investors the confidence they need in the durability of the AI trade, while anything short of that risks keeping markets stuck in the mud. Retail earnings will also be in focus with many major companies reporting. This will provide a good assessment of consumer sentiment heading into the holiday season and how these retailers have managed the K-shaped economy.
Beyond the United States, inflation will dominate the calendar, with price data due from Japan, the United Kingdom, and Canada. Japan’s report is expected to confirm sticky price growth near 3%, bolstering confidence in a December Bank of Japan rate hike, while the UK’s Consumer Prices Index could reinforce expectations that inflation has passed its peak. Purchasing Managers Index surveys across major economies will provide a timely pulse on global manufacturing and services activity heading into year-end.
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. 14, 2025.
3 This is not a recommendation to purchase or sell the companies or investment products mentioned herein.
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.
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Raymond James Investment Management or any of its affiliates to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and make their own determinations together with their own professionals in those fields. Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions, and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.
The views and opinions expressed are not necessarily those of the broker/dealer or any affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules, and guidelines.
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.
International investing presents specific risks, such as currency fluctuations, differences in financial accounting standards, and potential political and economic instability. These risks are further accentuated in emerging market countries where risks can also include possible economic dependency on revenues from particular commodities or on international aid or development assistance, currency transfer restrictions, and liquidity risks related to lower trading volumes.
Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.
Definitions
Artificial intelligence (AI) — A technology that enables computers and machines to simulate human learning, comprehension, problem solving, decision making, creativity and autonomy.
Ballast — Characteristics, factors or trading strategies that mitigate volatility or provide stability to a security or group of securities.
Breadth — The relationship between the median and the mean of a market index. When a few data outliers result in a mean that is substantially larger (or smaller) than the median of the full data set, then the performance of the entire index is being driven by a “narrow” selection of companies. An index supported by “broad” market movements is one where the median is closer to the mean. Market breadth is said to narrow when a smaller number of more extreme outliers drive the mean of an index further from its median.
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.
Commodity trading advisor (CTA) — An investment professional or firm that provides client-specific advice on buying and selling futures contracts.
Credit spread — The difference in yield between a U.S. Treasury bond and another debt security with the same maturity but different credit quality. Also referred to as “bond spreads” or “default spreads,” credit spreads are measured in basis points, with a 1% difference in yield equaling a spread of 100 basis points. Credit spreads reflect the risk of the debt security being compared with the Treasury bond, which is considered to be risk-free. Higher quality securities have a lower chance of the issuer defaulting. Lower quality securities have a higher chance of the issuer defaulting.
Credit spread widening — the expansion of credit spreads in response to changes in economic conditions that cause an increase in credit risk.
Earnings per share (EPS) — A company’s profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company’s profitability.
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.
Front-month gold price — The price of gold futures or options contracts that have the nearest expiration date, making them the most liquid and actively traded.
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.
Headwind — An event or market force that hinders the prospects for performance in an individual investment or group of investments.
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.
K-shaped economy — a situation where, following an economic downturn, different parts of the economy recover at different rates, creating a divergence like the letter “K.”
Liberation Day — A term used by President Donald Trump to refer to April 2, 2025, when he announced a wide range of unexpectedly high tariffs on many U.S. trading partners, triggering a global selloff of risk assets.
Long position - The purchase of a security with the expectation that it will rise in value, reflecting a bullish attitude.
Market capitalization, or market cap — The total dollar market value of a company’s outstanding shares of stock.
Mega-cap stocks — The largest publicly-traded companies as measured by market capitalization. Generally, this refers to companies with market capitalizations over $200 billion.
Payroll report (officially known as the Employment Situation Summary) — A monthly U.S. Bureau of Labor Statistics (BLS) report tracking nonfarm payroll employment and the national unemployment rate, with data on changes in average hourly earnings, and job trends in public and private sectors of employment. The report is based on surveys of households and employers.
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.
Revision ratio (specifically the earnings revision ratio) - A financial metric that measures the proportion of earnings forecasts that are revised upwards compared to those revised downwards. It is calculated using the formula: Earnings Revision Ratio = Number of Upward Revisions/Total Number of Revisions. This ratio helps analysts gauge investor sentiment and predict future stock price movements. A higher ratio indicates positive expectations, suggesting that more analysts are optimistic about a company’s future earnings, which can lead to higher stock prices.
Rotation — The movement of investments in securities from one industry, sector, factor, or asset class to another as market participants react to or try to anticipate the next stage of the economic cycle.
Short position - A trading technique in which an investor sells a security with plans to buy it later.
Sticky — Measured data that is slow to change, in contrast to faster-changing or more variable data.
Indices
ICE BofAML MOVE Index — A measure of U.S. interest rate volatility that tracks the movement in U.S. Treasury yield volatility implied by current prices of one-month over-the-counter options on 2-year, 5-year, 10-year and 30-year Treasuries.
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.
MSCI EAFE (Europe, Australasia, and the Far East) Net Index — measures the performance of performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the United States and Canada. The MSCI EAFE Net Index subtracts any foreign taxes applicable to U.S. citizens but not applicable to citizens in the overseas country.
MSCI Emerging Markets Index — measures the performance of large and mid-cap stocks across 24 emerging markets (EM) countries: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. With 1,189 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
VIX, officially the Chicago Board Options Exchange (CBOE) Volatility Index — is a real-time market index that represents the market’s expectation of 30-day forward-looking volatility. Derived from the price inputs of the S&P 500 index options, it provides a measure of market risk and investors’ sentiments.
M-842452 Exp. 3/17/2026
