Markets Slip to Start November as Investors Reassess the AI Trade

Markets Slip to Start November as Investors Reassess the AI Trade

Major U.S. and international equity indexes slipped to start November as investors reassessed current and future valuations surrounding the AI trade. Global equities, measured by the MSCI All Country World Index (ACWI), fell 1.46%, while U.S. equities, represented by the S&P 500, declined 1.61%. Although corporate earnings and spending tied to AI remain strong, investor sentiment appears to be cooling as valuations stay elevated. This was reflected in the Nasdaq Composite, which dropped more than 3% for the week.

Earnings Season Update

Earnings season remained active, with about 85 percent of S&P 500 companies having reported results as of Thursday, including five of the “Magnificent Seven.” Roughly 82 percent of companies beat expectations, above the five-year average of 78 percent, putting the index on track for 12 percent earnings growth and a fourth straight quarter of double-digit gains. The technology sector led results, posting 22 percent earnings growth as several mega-cap firms raised guidance tied to AI investments.

Earnings season remained active, with about 85 percent of S&P 500 companies having reported results as of Thursday, including five of the “Magnificent Seven.” Roughly 82 percent of companies beat expectations, above the five-year average of 78 percent, putting the index on track for 12 percent earnings growth and a fourth straight quarter of double-digit gains. The technology sector led results, posting 22 percent earnings growth as several mega-cap firms raised guidance tied to AI investments.

ADP’s October Report

With the government shutdown limiting official data releases, investors looked to private reports for labor market insight. ADP’s October report showed a 42,000-job gain after two months of declines, while Challenger, Gray & Christmas reported 1.1 million job cuts year-to-date, up 65% from 2024. A St. Louis Fed study also linked AI adoption to rising unemployment in tech-related fields, noting software developer openings have dropped about 75% from post-pandemic highs.

Other Notable News

Other notable news this week: The U.S. government shutdown became the longest on record, weighing on sentiment as concerns grew over its economic impact and delayed data releases. The Federal Aviation Administration ordered airlines to reduce flight traffic due to staffing shortages, underscoring the shutdown’s growing operational impact. The Institute for Supply Management (ISM) reported that services sector activity returned to expansion in October, with the Services PMI rising to 52.4%, while manufacturing contracted for an eighth straight month as the Manufacturing PMI slipped to 48.7%.

Meanwhile, the University of Michigan’s preliminary November Consumer Sentiment Index fell to 50.3, the lowest since June 2022, driven by weaker assessments of personal finances and business conditions amid shutdown concerns. Inflation expectations for the next year edged up to 4.7% from 4.6% in October.

Looking Ahead

For the week ahead, important economic releases include CPI and PPI inflation, retail sales, and hourly earnings. Some of these reports may be delayed, however, as the ongoing government shutdown continues to disrupt federal data operations.

As Always

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.