Stocks Seek Backstop During "November Chop"
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Our Views
- We had expected the first couple weeks of November to be choppy, and it certainly looks like we are in the midst of the chop. While some parts of the wall of worries, such as the government shutdown and the New York City mayoral race, have been resolved, other parts remain.
- This includes some FOMC members becoming increasingly hawkish, pushing down the perceived odds of a December rate cut, as well as uncertainty over the pending Supreme Court case regarding tariffs. The resulting slump in sentiment suggests the possibility of a decent entry point.
- Nevertheless, we expect the current chop to ultimately give way to a rally and ultimately add roughly 200 points to take the S&P 500 over 7,000.
- U.S. equity trends in SPX and QQQ are still bullish, but equities look to have entered a choppier environment that is bringing about some consolidation before SPX can push back to new highs.
- At present, I feel that this week’s drawdown should be nearing support over the next few days into next week. It is possible that we have already seen the lows for November, but even if this is the case, I’m still unwilling to think that an immediate push back to highs is imminent.
- However, if November lows are violated, this would represent an unexpected, but bearish development that I cannot rule out at this time. For those concerned with risk management, the areas of SPX 6631 and QQQ 598.68 are paramount to hold.
- Seasonally, this is typically a favorable period for risk assets. Furthermore, Bitcoin investor sentiment remains weak, with the Coinglass Fear and Greed Index has dipped back into “fear” territory, and options skew continues to reflect risk aversion.
- However, ETF inflows have slowed/reversed meaningfully, and digital asset treasuries (DATs), while still trading above NAV, have seen sharp compression in their premiums. Also concerning are the declining trend of USD outflows from ETFs and stablecoins, as well as the Coinbase/Binance spread, which has been in discount territory and continues to trend lower.
- Thus, for tactically minded investors, I think it is prudent to tilt exposure more heavily toward BTC, raise some cash, and wait for price confirmation before reengaging risk. Importantly, I continue to believe that we have another leg higher this cycle, but it may require a bit more patience.
- A week of Washington drama ended with Congress passing a Continuing Resolution (CR) that opened the government after a record 43-day long shutdown.
- Changes made in the Senate bill include funding for both the Departments of Agriculture and Veterans Affairs.
- The new CR provides funding that runs through the current fiscal year ending Oct. 1, 2026, at least for those two departments. The other government departments will need to be funded by the new spending deadline of Jan. 30 to avoid another shutdown crisis.
Wall Street Debrief — Weekly Roundup
Key Takeaways
- The S&P 500 ended the week nearly flat, up 0.08% to 6,734.11. The Nasdaq slipped 0.45% to 22,900.59. Bitcoin was at 94,685.09 on Friday afternoon, down about 9.6% from Monday levels.
- Fundstrat Head of Research Tom Lee acknowledges a wall of worries for stock investors, but maintains his S&P 500 year-end target of 7,000 or more.
- Head of Technical Strategy Mark Newton remains concerned about continued breadth deterioration, though he views longer-term bullish trends as still intact.
“Everything is possible for him who possesses courage and activity … and to the timid and hesitating everything is impossible, because it seems so." ― Walter Scott, Rob Roy
Good evening,
Stocks are in the midst of the "November chop" that Fundstrat Head of Research Tom Lee had anticipated as a possibility at the beginning of the month. Some of this choppiness is arguably the result of various news stories perpetuating worries about a possible AI bubble.
Across Fundstrat, there is a fairly consistent view on the matter. Is there an AI bubble? Here's how Fundstrat Head of Data Science Ken Xuan responded at our weekly research huddle: "I don't think so." He posted a rhetorical question to frame his argument: "Over the past few years, how many times have we heard this kind of bubble talk, this chatter about bubbles?" In his view, it's been "too many." Xuan added, "our base case about AI hasn't really changed, and neither have our views on its likely impact on the economy and the labor force."
Head of Technical Strategy Mark Newton has a similar view. "I don't really agree with the bubble narrative," he chimed in. From a long-term perspective, "trends are intact."
It wasn't just speculation about an AI bubble that weighed on investors' minds, however. Fundstrat Head of Research Tom Lee sees a wall of worries contributing to recent market choppiness. For one thing, Federal Reserve officials have become increasingly hawkish, pushing down the implied odds of a cut at the Dec. 10 Federal Open Market Committee (FOMC). Meanwhile, it now seems possible that the Supreme Court will overturn Trump's tariffs, causing investors to worry about his response. As Lee notes, "the White House is likely to look for new ways to implement tariffs," but the uncertain path of the administration's response has pushed markets in a bearish direction.
All of this has caused AAII sentiment to plunge, falling to one of the lowest levels of the year – net bears of -17.5. Lee sees this as a positive signal. As he recalled, "the last time readings were this bad, it was actually a decent entry point."
Although the recent choppiness has not caused Newton to panic, continued breadth deterioration continues to concern him. "The market has some work to do in broadening out the percentage of stocks within 20% of 12-month highs," he said, pointing out that this number has been rolling over in the last few months. "I think it is important that we start to regain this very quickly if we hope to have this big rally in December."
As he reminded us, a similar breadth deterioration preceded the declines of 2022. This sort of deterioration started to come about throughout 2021. "Officially, the S&P 500 didn't peak until January 2022, but much of the decline had already begun in November."
Nevertheless, Lee sees the likelihood of active-fund managers boosting the market as they try to make up for their YTD underperformance, with only about 20% of active fund managers beating their benchmarks as of Sept. 30. "We are on track to have three years of back-to-back 20%-plus gains," he pointed out. "As you know, many institutional funds are measured on three-year gains. Are fund managers properly positioned to show those kinds of returns over this time period?" Lee suspects not, and "in my opinion, that means there's going to be a year-end chase," he said. This is illustrated in our Chart of the Week:
Newton on energy
"One of the biggest stories this week involved OPEC Plus sort of changing the narrative," Newton said, referencing the cartel revising its projection to a slight surplus in 2026, rather than its earlier expectations of a supply deficit. "They said we pumped way more than we needed in the prior quarter. A lot of that came from the U.S., and also Argentina, Canada, and Brazil."
"Energy has been the top performing sector over the last one week, one month, and almost three months," Newton acknowledged, "but my thinking is that energy is largely going to start to pull back. I don't suspect that we will see it break out. Energy's had a nice bounce, but it should be time to fade energy."
Elsewhere
Federal Reserve Bank of Atlanta President Raphael Bostic is retiring when his current term ends in February. Regional Fed presidents are nominated by the banks' respective boards (and approved by the Fed Board of Governors), typically made up of local business leaders, so Trump's ability to influence the choice of Dr. Bostic's successor is indirect. Bostic has been regarded as somewhat hawkish during the recent rate-hike cycle, and in his retirement announcement, he expressed his current inclination to leave rates unchanged at the next Federal Open Market Committee meeting on Dec. 10.
Softbank shifted its AI bet, disclosing the divestment of its entire Nvidia stake for $5.8 billion and freeing up cash to amp up its bet on OpenAI. SoftBank sold its NVDA 1.70% shares in October, with the money going to partially fulfill the $30 billion commitment to OpenAI that it made in the spring. Softbank bought ABB's robotics division last month and maintains a significant stake in Arm, the British chip designer.
Starbucks employees began a nationwide strike ahead of the holiday season, with the company and labor union unable to resolve differences over wages, improved scheduling and hours, and allegations of unfair labor practices such as retaliatory firings and union-busting. The strike is limited at the moment – 1,000 employees in 65 stores across the U.S., but could expand if the issues remain unresolved.
It was a good news, bad news week for Anthropic, creators of the Claude generative AI. First the good news: Anthropic announced that researchers without robotics experience were able to use Claude to program the robot dog (a Unitree Go2 quadruped) and have the "dog" perform tasks such as walking around and finding a beach ball, illustrating how AI can move beyond the screen to affect the physical world. Anthropic also had some bad news: Chinese state-sponsored hackers had used a "jailbroken" version of Claude (illicitly modified to circumvent built-in safeguards) to go on a cyberhacking spree, initiating a myriad of attacks – four of which were successful. (Anthropic was able to detect and disrupt the others.) The victims, described as "major corporations and foreign governments", were not publicly identified.
Scotland will issue bonds for the first time since the late 1600s, seeking to raise about GBP 300 million (USD $395 million) in 2026-2027 and more in subsequent years to bring the total up to GBP 1.5 billion ($1.97 billion). The so-called kilt bonds will ostensibly fund unspecified infrastructure projects, but they are also part of a larger push to operate with greater financial independence apart from the United Kingdom and become a prominent player in the financial industry. Moody’s and S&P Global have awarded Scotland investment-grade ratings of Aa3 and AA, respectively, but each stressed that those ratings were predicated in part on Scotland remaining part of the UK.
Switzerland reached a trade agreement with the U.S. that would see tariffs on Swiss imports lowered from 39% to 15%. The latest agreement would lower rates on imports of pharmaceuticals, dairy, and of course, fine wristwatches. The initially high tariff levels had surprised Switzerland, which had believed that imports of Swiss-refined gold bullion should not count toward the calculation of a trade deficit on manufactured goods. Gold bullion, much of which is refined but not mined by the Swiss, has seen increased U.S. demand in 2025 as its price on commodity markets surged.
A bidding war for Warner Bros. Discovery might be set to heat up next week, with Paramount, Comcast, and Netflix reportedly preparing bids for all or part of the company. Paramount had previously submitted multiple bids to buy the company in its entirety, while Comcast and Netflix are reportedly interested only in the Warner Bros. movie and television studios and the HBO Max streaming service.
And finally: The last new U.S. penny has been minted. On Wednesday afternoon, the last coppery coin rolled off the press, ultimately meeting the same fate as the half-cent coin, which was last minted in 1857. Critics have long noted that the one-cent coin costs about 3.7 cents to make, and they might soon target the nickel, which costs almost 14 cents to make.
