Summary
November was marked by investor de-risking following the Fed’s hawkish pivot.
Volatility is likely to continue until the market gets more clarity on economic data, the Fed leadership transition, and the payoff potential of AI investments.
Not all AIs are equal: in November, both high-quality and speculative AI names were sold, while low-valuation SMID AI stocks were bought.
Concerns about overvaluation in high quality AI stocks aren’t supported by the data, but the payoff of AI investments remains anyone’s guess at this point.
The month's consolidation removed some excess froth and broadened into more AI names, setting the stage for a sustainable bull run.
Sector Dispersion Dominates
All market segments suffered drawdowns in November,
but a V-shaped recovery helped recoup some of the losses.
Value generally outperformed growth, and SMID outperformed large caps, but sector made the biggest difference: Health Care ended the month as the top performer, up 9.3%, while technology was the worst performer, down 4.8%.
(Source: Yahoo Finance; BAS calculation)
An AI Sell-off?
Yes and no. Despite the headline framing, investors actually bought lower-valuation AI names in SMID while selling AI stocks outside the S&P 1500 - typically the unprofitable, speculative names we highlighted in last month’s market recap. I think this shows investors haven’t turned away from AI - just become more cautious and selective.
(Source: S&P; Goldman Sachs AI Baskets; BAS calculation)
Are High-Quality AI Stocks Getting Too Expensive?
The narrative that AI stock valuations are broadly overstretched isn’t supported by the data. All Mag-7 names sans TSLA trade at lower forward P/Es than consumer companies like Walmart and Costco. (WMT gained 9.2% in Nov despite higher valuation and much lower profit margin.)
(Source: Yahoo Finance; Goldman Sachs AI Baskets; BAS calculation)
While it's true that projecting AI spending payoff is very challenging, hyperscalers currently have strong balance sheets despite recent debt issuance, and remain highly profitable.
The Fed was the Central Catalyst Behind November’s Decline
The Fed’s hawkish tone in October clearly pivoted the market. Risk appetite cooled immediately, as reflected in Bitcoin’s sharp decline. On the same day as the FOMC press conference, the Nasdaq peaked while defensive pockets, such as pharma, rallied.
November: A Healthy Breather for the Bull Run
As noted last month, unprofitable small-cap AI names had become frothy. November’s consolidation removed some of that excess and broadened into lower valuation AI names, setting up a more sustainable bull run.
Volatility may still persist. The options market assigns an 87.4% probability to a 25bp cut in December, but the Fed’s hawkish messaging has pushed investors to focus on 2026. Until we get more clarity on macro data and the Fed leadership transition, mood swings will continue.
Bitcoin and Gold
Bitcoin, as a high-beta, high-risk asset, declined sharply in November, sending its price back to near the April lows. Gold, on the other hand, has held up well.
(Source: Yahoo Finance; BAS calculation)
Asset Returns
Year-to-date, equities - U.S. or international (EFA, EEM), public or private (CPEFX) - have delivered strong returns. Bonds held up well in November, with EM bonds (VWOB) outperforming EM equities (EEM). Catastrophe bonds (XILSX) and managed futures (DBMF) provided uncorrelated returns, while some alternatives came under pressure.
(Source: Morningstar; BAS calculation)