Economic & Market Monitor
For the period ending November 21, 2025
Market Review
Stocks Retreat: Despite strong third-quarter earnings and constructive economic data, stocks sold off globally as investor sentiment turned cautious. Domestically, the S&P 500 fell 1.9% last week, trimming its year-to-date gain to 12.4%. Most sectors finished lower, led by technology, consumer discretionary, and energy. Internationally, developed and emerging markets dropped 3.4% and 3.7%, respectively. These losses trimmed their year-to-date gains to 24.0% and 30.1%.
Interest Rates Fell: The yield on the 10-year U.S. Treasury note settled at 4.06% on Friday, down 0.09% for the week. The Bloomberg U.S. Aggregate Bond Index gained 0.5%, while the Bloomberg U.S. Municipal Bond Index slipped 0.1%. Year-to-date, these indexes were up 7.1% and 4.0%, respectively.
A Divided Fed: Minutes from the Federal Open Market Committee’s (FOMC) October meeting revealed its members were split on whether an additional fed funds rate cut would be needed this year. As of Friday, fed funds futures implied a 65% probability that the FOMC will cut the fed funds target rate range by 0.25% to 3.50%-3.75% at its December 10th meeting.
Q4 Economy Expanding: S&P Global’s preliminary November U.S. Composite Purchasing Manager Index (PMI) ticked up to 54.8 from 54.6 in October. The PMI measures business activity in both the services and manufacturing sectors. PMIs above 50 reflect expansionary conditions.
Mixed Signals in the Labor Market: The Bureau of Labor Statistics (BLS) released its September non-farm payroll report, which had been delayed for 48 days due to the U.S. government shutdown. Job growth exceeded expectations, with 119,000 positions added compared to the Bloomberg consensus forecast of 53,000. However, the unemployment rate edged up to 4.4% from 4.3% in August, reflecting an increase in the number of job seekers. Initial claims for unemployment benefits for the week ending November 15th dropped to 220,000 from 228,000 the prior week. However, continuing claims for the week ending November 8th rose by 28,000 to 1.97 million. The overall message from the data suggests it’s getting tougher for laid-off employees and job seekers to find jobs, but layoffs and continuing claims for unemployment benefits remain low compared to their long-term averages.
Consumer Confidence Dips Further in November: The University of Michigan’s Consumer Sentiment Index slipped to 51.0 in November from 53.6 in October. The weakness reflects consumer concerns about inflation and job security. The latest reading is in the same range it fell to during periods of severe economic stress brought on by the Global Financial Crisis (55.3) and the COVID-19 Pandemic (51). The long-term average for the index is 84.2. Despite a pronounced weakening of consumer confidence since the start of the year, retail spending has remained strong, supported by low levels of unemployment and continued wage gains.
Strong Q3 Corporate Earnings: As of Friday, about 95% of S&P 500 companies had reported their Q3 earnings results, with 83% exceeding analysts’ forecasts as tracked by I/B/E/S. With just a few companies still to report, year-over-year Q3 S&P 500 earnings per share (EPS) growth is currently estimated at 14.7%, up from 8.8% on October 1st. Analysts estimate full-year 2025 and 2026 EPS growth at 12.9% and 14.3%, respectively.
Outlook
At the start of the fourth quarter, the fundamental underpinnings for the stock market looked good, but its valuation level had become stretched following the S&P 500’s more than 30% rally from its early April low. Through Friday, the fundamental picture has improved with the earnings outlook for the S&P 500 rising and interest rates moving lower. However, valuation remains high, with the S&P 500 trading at over 21 times projected 2026 earnings per share. Stock market bubble concerns don’t seem justified given the strong earnings uptrend that is in place and today’s benign interest rate environment. At the height of the dot-com bubble in early 2000, the S&P 500 was trading at close to 30 times earnings, with fed funds and 10-year U.S. Treasury note rates about 50% above their current levels. The S&P 500 has pulled back about 5% from its October 29th record high. Absent a negative shift in the economic outlook, it’s likely the stock market is simply going through a typical and short-lived bull market correction in the 5%–10% range.
Roger Khlopin, CFA
Chief Investment Officer
Aaron Nghiem, CFA, CIMA
Senior Portfolio Manager
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