Market rally stalls, volatility rises

Equity markets declined in November after a streak of six consecutive monthly gains, pressured by fears of a bubble in AI-related technology stocks. These concerns spread across the broader market to a lesser degree.

Data represented through Nov. 24

The CBOE Volatility Index (VIX) closed at 20.7 in November, near stable levels and well below the 60.1 intraday high in April. We expect volatility to stay somewhat elevated, but markets can perform well in such environments. Fixed-income markets also remained positive after a slow start, with the Bloomberg U.S. Aggregate Bond Index up 7.3% year-to-date, well above last year’s 1.3% return.

Economic insights

The Bureau of Labor Statistics did not release the October CPI report due to the government shutdown. September’s report showed CPI rising to 3.0%, up 0.1% from the previous month. The next report is scheduled after the Federal Reserve meeting on Dec. 10, which means the Fed will not have the most recent CPI data. Nevertheless, markets are hoping for another 25-bps rate cut.

Although the BLS did not release job data for November, September numbers showed 119,000 jobs created, compared to 22,000 in August and 3,000 in June. The unemployment rate rose to 4.4%.

Solid earnings despite tech market concerns

The valuation concerns over AI and technology caused a slight ebb in the broader market; the pullback was more pronounced in tech stocks. With many companies “priced for perfection,” even the smallest shortcomings put more pressure on stock prices than usual.

Still, third-quarter earnings were solid: 83% of S&P 500 companies reported a positive earnings surprise. Year-over-year earnings growth reached 13.4%, marking the fourth straight quarter of double-digit increases.

Growth is expected to improve through the fourth quarter and into 2026, though November’s increased volatility may temper investor expectations. The recent moves in equity markets are normal for the current rally. Our advice is to remain diversified and stay the course.

Rallying into 2026

Driven mostly by earnings, equity markets can continue to perform well into the end of the year. Despite higher volatility in October and November, company performance is solid and continues to support markets. Rising pressure on inflation could limit Fed rate cuts in 2026.

Investment opportunities remain across private equity and credit, venture growth, technology, and dividend-oriented names. Market valuation stands at 21.5 times forward earnings, slightly below levels at the beginning of the year. The economy looks relatively strong, and U.S. companies are still demonstrating innovation, profitability, and good management.

Bottom line: Inflation is not over yet. High price levels in some consumer areas may have halted the market rally, but they haven’t derailed it.