Market Monitor | November Update
Headlines and Highlights
- AI spending prompts global growth upgrades: Heavy spending by U.S. technology companies on artificial intelligence has sparked increased optimism about prospects for the global economy and trade. The scale of the AI spending spree has more than offset the expected economic drag created by higher U.S. tariffs – the World Trade Organization and International Monetary Fund are among those to significantly upgrade their 2025 global GDP growth forecasts this fall. Tech firms unveiled ambitious additional spending on AI in the earnings season just completed. Amazon, Google, Meta, Microsoft, Nvidia and others have sunk hundreds of billions of dollars into AI research and development, data centers and equipment in 2025, and have committed to spending many billions more next year.
- Hassett seen as Trump’s choice for Fed chair: National Economic Council Director Kevin Hassett emerged as the frontrunner to replace Jerome Powell as Federal Reserve chair. Bloomberg News cited people familiar with the matter as saying that President Trump is likely to choose Hassett when he announces his choice soon. Hassett also is the odds-on favorite on Wall Street. Trump has frequently assailed Powell, whose term expires in May, for not lowering interest rates quickly enough – even with two cuts so far in 2025 and potentially a third this month, the president’s public statements strongly suggest he would expect Hassett to push a more aggressive pace on rate reductions.
- Late-month gains salvage November for investors: Major indexes posted slight gains last month as optimism about record corporate earnings narrowly offset unease about the sustainability of the AI-driven market rally. The S&P 500 erased all of an earlier 5% decline in late November on positive economic news and tariff deals, eking out a 0.2% gain (17.8% year-to-date) for its seventh straight monthly rise. Small caps and international stocks surged barely into the black at month-end and remained on track for historically above-average gains for 2025. Real estate investment trusts led major asset classes with a 2.4% gain (+5.5% for the year).
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Our Views
- The global stock market is proving resilient despite increasing investor worry that the AI buildout may not pay off. Lofty valuations in the tech sector are spurring comparisons to the dot-com boom and subsequent bust in the early 2000s, but that is a stretch in our view given the healthy revenue and profitability growth of today’s leading tech players.
- The Federal Reserve is likely to cut short-term interest rates again at its December 9-10 meeting, based on recent public comments by some Fed officials who will vote on the policy move. We think lower rates are justified to address a weakening labor outlook as inflation remains stable around 3%.
- Government statistics are back in production following the mid-November deal that ended the record 43-day federal shutdown. Official data on inflation and employment will not be released before the next Fed meeting, but a return to normalcy on calculating the numbers will be key in helping the central bank plot its path on rates in 2026.
- Consumer confidence reports show a persistent downward trend in recent months but consumers (especially higher earners) continue to spend. The National Retail Federation predicts that this year’s holiday spending will top $1 trillion for the first time. With the consumer accounting for close to 70% of U.S. economic activity, this is a positive sign for the economy.
- Manufacturing activity declined for a ninth straight month in November, according to the latest survey by the Institute for Supply Management. The ISM cited a slowing in factory orders and the impact of tariffs as the key reasons. Lower interest rates and more tariff reductions could help mitigate manufacturing’s struggles and contribute to economic growth.
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