Weekly Market Watch

In the Cold November Rain

Last week, global equities declined as investor sentiment remained cautious amid ongoing concerns about heightened artificial intelligence (AI) valuations. Despite stronger-than-expected earnings results and robust AI chip demand from Nvidia Corp., it was one of the worst weeks for the MSCI All Country World Index since early April. Developed international equities faced pressure after Japan’s fiscal stimulus package led to their 30-year government bond yield reaching an all-time high. The release of U.S. economic data resumed following the end of the government shutdown, showing mixed signals in the labor market with a rising unemployment rate and payrolls that exceeded consensus expectations.

Market Outlook

We think the recent pullback in equities is a sign of a healthy market dynamic and is driven by investor sentiment, not decelerating fundamentals. Markets are focused on the outlook for two key drivers: AI growth and easing monetary policy. Meeting minutes from the October Federal Open Market Committee meeting were released last week and tempered expectations for a December rate cut, which came in contrast to policymaker speeches on November 21 that supported a cut. We continue to believe that softening labor market trends will result in further policy easing in the coming months.

Chart of the Week

Given numerous macroeconomic issues and uncertainty, investor sentiment has been far more negative compared to recent years.

The AAII U.S Investor Sentiment bull/bear spread, a ratio of the percentage of bullish and bearish investors, retreated into bearish territory during the past two weeks.

We view the indicator as a helpful contrarian metric given that our outlook for economic activity and earnings remains positive.

FOR AN IN-DEPTH LOOK

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