November Pullback Could Set the Stage for Year-End Rally
The LPL Strategic & Tactical Asset Allocation Committee (STAAC) determines the firm’s investment outlook and asset allocation that helps define LPL Research’s investment models and overall strategic and tactical investment thinking and guidance. The committee is chaired by the chief investment officer and includes investment specialists from multiple investment disciplines and areas of focus. The STAAC meets weekly to closely monitor all global economic and capital markets conditions to ensure that all the latest information is being digested and incorporated into its investment thought.
Key changes from STAAC:
- Upgraded view on Event Driven alternative strategies to positive
- Downgraded view on alternative Managed Futures strategies to neutral
Investment Takeaways
Major averages ended November mixed, with the S&P 500 eking out a monthly gain on the final day of trading after dropping nearly 4.5% earlier in the month. A mid-month slide was sparked by a brief reduction in rate cut expectations, an unwind of popular momentum trades, and elevated artificial intelligence (AI) scrutiny. Healthcare led gains and technology was the biggest laggard with the bulk of Magnificent Seven names ending lower. Nonetheless, stocks rebounded to end November, and the upbeat fundamental picture remained intact. As earnings season drew to a close, S&P 500 companies in aggregate posted another quarter of doubledigit earnings growth at 13.5%, with an 83% beat rate, solidly above the five-year average of 74%. November earnings reports were highlighted by AI-theme bellwether NVIDIA (NVDA), which delivered a beat and raise.
Core bonds extended year-to-date gains to 6.7% last month, measured by a 0.6% advance in the Bloomberg U.S. Aggregate Index. U.S. Treasuries declined early in the month after the Treasury Department’s quarterly funding announcement indicated the Treasury is mulling increased auction sizes, before rallying to a fourth consecutive monthly advance as December rate cut expectations bounced back. Mortgage-backed securities (MBS) and high-yield bonds posted healthy gains, while municipal bonds were a relative underperformer with a more measured advance.
Looking forward, investors may be well served by bracing for additional bouts of volatility amid a slowing economy, AI investment scrutiny, and continued policy uncertainty. While the November pullback aided stretched positioning, valuations remain elevated and recent rotation dynamics suggest potential market swings remain on the table. But given the powerful AI trend, big tech’s significant earnings power, potential forthcoming Fed rate cuts, and the fiscal stimulus boost when 2026 begins, pullbacks are likely to be shallow.
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IMPORTANT DISCLOSURES
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Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.
Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
All index data from FactSet.
The Strategic and Tactical Asset Allocation Committee (STAAC) is a division of LPL Research.
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