Weekly Investment Perspective

Last week brought a marked uptick in volatility across equity markets, with sentiment challenged by a convergence of factors. After a strong rally in some tech names earlier in November, stocks retraced sharply mid-week as investors wrestled with valuation concerns, especially in the Artificial Intelligence (AI) space, and uncertainty about the pace and timing of monetary easing by the Federal Reserve. The benchmark indices ended the week modestly higher on Friday but still posted weekly losses, underlining the fragility of risk appetite in the current environment. The NASDAQ finished the week down 2.7%, the S&P 500 and the Dow posted smaller declines of just under 2.0%.

On the economic front, the U.S. labor market delivered a mixed picture. With an end to the government shutdown, the Bureau of Labor Statistics published a delayed September non-farm payrolls which showed solid job gains, but the unemployment rate ticked up, and prior months’ data were revised downward. Meanwhile, a key survey from S&P Global found the service sector registered its strongest growth in four months, while manufacturing continued to edge higher but at a slower pace. These data points reinforced the narrative of a resilient but uneven economy, adding complexity to the Fed’s policy calculus. Also, it is worth noting that the headline numbers mask the prevailing mood: consumer sentiment in the U.S. slipped to one of the lowest levels in years amid persistent inflation, equity market declines, and spending fatigue.

Investors remained focused on whether Federal Reserve policymakers will cut rates again when they meet on December 9–10. The minutes from their October meeting indicated considerable skepticism about the need for an additional cut in December. However, comments on Friday morning by John Williams, the president of the New York Fed, seemed to support a near-term rate cut and appeared to boost sentiment in equity markets on Friday. This divergence in messaging underscores the uncertainty surrounding monetary policy as year-end approaches.

From a thematic standpoint, the technology sector — especially AI-driven companies — arguably carried more burden than benefit this week. Despite stellar results from Nvidia Corporation, including revenue jumping over 60% year-on-year, the broader market was unmoved, and the stock itself fell amid worries about excess spending and stretched multiples. This reaction highlights growing investor caution toward high-growth sectors in an environment of rising rates and tighter liquidity.

Adding to global complexity, Japanese government bond yields surged to multi-decade highs, with the 30-year yield above 3.3%. This reflects fiscal expansion and expectations of tighter policy from the Bank of Japan. Higher JGB yields could prompt Japanese investors to repatriate funds, reducing demand for U.S. Treasuries and pushing global borrowing costs higher. For U.S. markets, this dynamic reinforces upward pressure on yields and underscores the importance of monitoring cross-border capital flows.

Despite these challenges, we remain impressed with the resiliency of the U.S. economy driven in no small measure by American ingenuity and innovation.

We wish you and your family a Very Happy Thanksgiving!

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