Weekly Market Watch

Market Review: Midterm myopia

Global equities pulled back last week. Notably, Thursday marked the sharpest one-day decline for the S&P 500^® since April 2025 and came despite positive pre-market futures. Some investors had been surprised by Wednesday’s positive market returns following Tuesday’s U.S. midterm elections, as the election results were widely interpreted as a potential headwind for artificial intelligence-related stocks. Thursday’s sharp reversal showed characteristics of leveraged trades being rapidly unwound and hedge funds covering losses from the prior day.

Despite the significant spike in volatility, U.S. Treasury yields were little changed, credit spreads did not widen alongside the equity market decline and the U.S. Dollar Index weakened. If Thursday’s move reflected a true flight to safety, the effects would have been evident across asset classes, not just equities, in our view.

Market Outlook

Recent economic data, such as the ISM^® Manufacturing PMI^® and payroll report, confirmed our view that fundamentals remain intact. Inflation data this week should provide further insight into the Federal Reserve’s policy path; consensus currently expects a December rate hike. Elections have historically been periods of heightened market volatility, and we continue to recommend staying diversified with an equity tilt.

Table of the Week

Cboe Volatility Index® (VIX®)

The VIX, commonly known as the “fear gauge,” tracks investor expectations for near-term equity market volatility.
The Nov. 5 spike in the VIX was the largest since the market volatility surrounding the April 2025 reciprocal tariff announcements, despite the absence of significant economic data disappointments that day.
The sharp rise in volatility suggests investors were reacting to an unexpected market move rather than a deterioration in the economic outlook.

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