Equity leadership reversed in November, with AI-heavy and momentum names stumbling and Technology becoming the month’s worst performer as investors questioned the timing and profitability of large-scale AI investment.
November saw a meaningful rotation beneath the surface, as stretched valuations and profit-taking in mega-cap tech contrasted with continued strength in quality and balance-sheet-driven names, reinforcing the case for diversification.
While we remain confident that AI will be a transformational technology, heavy near-term spending and uncertain payoff timelines mean investors should expect continued volatility as expectations and reality periodically diverge.
Limited data availability amplified uncertainty, as the unprecedented cancellation of the October jobs and CPI reports and delay of the November reports left markets without key inputs and contributed to sharper swings in Fed expectations.
Policy uncertainty remained elevated, with Powell emphasizing “strongly differing views” inside the Fed and futures markets pricing—but not guaranteeing—another cut, forcing policymakers to approach December’s decision “in the fog.”
The 10-year Treasury traded in a tight 4.00%–4.15% range, briefly rising after hawkish remarks before ending the month near ~4.00% on weaker equities, softer labor estimates, and a modest flight to safety.
Equity Markets
November saw a notable shift in investor sentiment. After months of strong flows into AI-heavy and momentum-driven names, some market participants began to question whether the scale of AI investment—and the eventual return on that investment—could justify current valuations. As a result, there was a reversal of some of the year’s biggest momentum trades, and Technology ended November as the worst-performing sector for the month.
A useful illustration of this trend comes from the Goldman Sachs AI Basket Index, which declined roughly -12% from the end of October to November 21 before beginning to recover in the last few trading days of the month. That drawdown reflected investor worries over the pace and profitability of AI spending. While there was some rebound toward month-end, the mid-month slide underscored how fragile investor conviction can be when momentum trades collide with real questions of return on capital and execution.
Goldman Sachs AI Basket Index
While we remain confident that AI will be a transformational technology and expect heavy investment in the space to continue, investors should be prepared for elevated volatility along the way. The scale of current spending is substantial, but the financial return on these investments will likely take time to materialize, creating periods where expectations and reality temporarily diverge. As a result, sharp swings in sentiment—both positive and negative—are likely to remain a defining feature of the AI theme in the near term.
Much of the broader backdrop remains unchanged from what we wrote last month: the U.S. economy continues to show resilience despite policy volatility; tariffs have been less inflationary than feared; interest rates and short-term yields have eased, supporting balance sheets; and corporate fundamentals remain solid, with strong earnings, stable margins, and rising productivity. Policy tailwinds—from tax changes to regulatory rollbacks—are still encouraging investment, especially in AI, where mega-cap spending is reshaping corporate balance sheets and contributing meaningfully to GDP. At the same time, higher valuations, pressure on lower-income households, a still-large federal deficit, and risks of AI overinvestment temper the outlook. The lack of official October data added to uncertainty, driving sharp swings in Fed expectations and placing even greater importance on the November reports set for release in December.
As we look toward the remainder of the year, the setup for equities is balanced between the usual seasonal strength in December and a meaningful potential for volatility tied to delayed economic data.
As we wrote last month, the fundamental backdrop remains broadly supportive, but elevated valuations, uneven consumer strength, as seen in the most recent sentiment and retail sales reports, and uncertainty created by missing data continue to warrant a measured, risk-aware approach, suggesting that investors emphasize quality and diversification in their portfolios.
Equity Leadership Reverses
Equity Leadership Reverses
Performance Review & Outlook
Highlights
Equity leadership reversed in November, with AI-heavy and momentum names stumbling and Technology becoming the month’s worst performer as investors questioned the timing and profitability of large-scale AI investment.
November saw a meaningful rotation beneath the surface, as stretched valuations and profit-taking in mega-cap tech contrasted with continued strength in quality and balance-sheet-driven names, reinforcing the case for diversification.
While we remain confident that AI will be a transformational technology, heavy near-term spending and uncertain payoff timelines mean investors should expect continued volatility as expectations and reality periodically diverge.
Limited data availability amplified uncertainty, as the unprecedented cancellation of the October jobs and CPI reports and delay of the November reports left markets without key inputs and contributed to sharper swings in Fed expectations.
Policy uncertainty remained elevated, with Powell emphasizing “strongly differing views” inside the Fed and futures markets pricing—but not guaranteeing—another cut, forcing policymakers to approach December’s decision “in the fog.”
The 10-year Treasury traded in a tight 4.00%–4.15% range, briefly rising after hawkish remarks before ending the month near ~4.00% on weaker equities, softer labor estimates, and a modest flight to safety.
Equity Markets
November saw a notable shift in investor sentiment. After months of strong flows into AI-heavy and momentum-driven names, some market participants began to question whether the scale of AI investment—and the eventual return on that investment—could justify current valuations. As a result, there was a reversal of some of the year’s biggest momentum trades, and Technology ended November as the worst-performing sector for the month.
A useful illustration of this trend comes from the Goldman Sachs AI Basket Index, which declined roughly -12% from the end of October to November 21 before beginning to recover in the last few trading days of the month. That drawdown reflected investor worries over the pace and profitability of AI spending. While there was some rebound toward month-end, the mid-month slide underscored how fragile investor conviction can be when momentum trades collide with real questions of return on capital and execution.
Goldman Sachs AI Basket Index
While we remain confident that AI will be a transformational technology and expect heavy investment in the space to continue, investors should be prepared for elevated volatility along the way. The scale of current spending is substantial, but the financial return on these investments will likely take time to materialize, creating periods where expectations and reality temporarily diverge. As a result, sharp swings in sentiment—both positive and negative—are likely to remain a defining feature of the AI theme in the near term.
Much of the broader backdrop remains unchanged from what we wrote last month: the U.S. economy continues to show resilience despite policy volatility; tariffs have been less inflationary than feared; interest rates and short-term yields have eased, supporting balance sheets; and corporate fundamentals remain solid, with strong earnings, stable margins, and rising productivity. Policy tailwinds—from tax changes to regulatory rollbacks—are still encouraging investment, especially in AI, where mega-cap spending is reshaping corporate balance sheets and contributing meaningfully to GDP. At the same time, higher valuations, pressure on lower-income households, a still-large federal deficit, and risks of AI overinvestment temper the outlook. The lack of official October data added to uncertainty, driving sharp swings in Fed expectations and placing even greater importance on the November reports set for release in December.
As we look toward the remainder of the year, the setup for equities is balanced between the usual seasonal strength in December and a meaningful potential for volatility tied to delayed economic data.
As we wrote last month, the fundamental backdrop remains broadly supportive, but elevated valuations, uneven consumer strength, as seen in the most recent sentiment and retail sales reports, and uncertainty created by missing data continue to warrant a measured, risk-aware approach, suggesting that investors emphasize quality and diversification in their portfolios.
S&P 500 Price Index
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