Risk-Off Week Due to Valuation Concerns and Rate Cut Uncertainty

Performance for Week Ending 11.21.2025:

The Dow Jones Industrial Average (Dow) fell 1.9 percent, the Standard & Poor’s 500 Index (S&P 500) lost 2.0 percent, and the Nasdaq Composite Index (Nasdaq) declined by 2.7 percent. Sector breadth was negative with seven of the 11 S&P sector groups closing lower. The communication services sector (3.0 percent) was the best performer, while technology (-4.7 percent) was the weakest.

*See below for Index Definitions

MARKET OBSERVATIONS: 11.17.2025  – 11.21.2025

The S&P 500 finished the week lower due to heightened investor anxiety over elevated valuations in the technology sector, aggressive AI spending plans, and concerns about the forward path for interest rates. On Friday, stocks pared a portion of the losses from earlier in the week following dovish comments from New York Federal Reserve (Fed) President Williams. Speaking in Santiago, Chile, Williams said he sees room for the U.S. central bank to cut interest rates again in the near term as the labor market softens. The remarks suggested that another rate cut remains a possibility as Fed Chair Powell tries to forge a consensus among a fractured group of policymakers ahead of the December 9–10 Federal Open Market Committee (FOMC). Bloomberg’s World Interest Rate Probability tool is currently showing a 65 percent chance of a December cut, up from 37 percent prior to William’s comments.

Worries over the health of the consumer—the main driver of U.S. economic growth—added to the weekly woes. On Friday, the University of Michigan’s consumer sentiment index fell to one of the lowest levels on record with consumers citing frustration due to high prices and weakening incomes. These trends were underscored on retailer Target’s quarterly earnings call with the company’s chief commercial officer saying that sentiment is low amid concerns about jobs, affordability, and tariffs.

Fed Speak: While Williams stoked rate cut hopes on Friday, other Fed speakers earlier in the week took on a more cautious tone. Cleveland Fed President Hammack said lowering interest rates to support the labor market could extend the period of above-target inflation and increase financial stability risks. Recent stock market gains and easy credit conditions add to the danger by encouraging investors to take more risk, Hammack said. Fed Governor Barr said the central bank needs to proceed with caution in considering additional interest rate cuts with inflation still running a full percentage point above its target. Chicago Fed President Goolsbee signaled that he’s still apprehensive about delivering another rate cut at the central bank’s December meeting.

FOMC Meeting Minutes: According to the minutes from the October FOMC meeting, Fed officials held “strongly differing views” about whether to cut interest rates in December, with rising sentiment among officials that progress on inflation had stalled. Many officials wanted the Fed to hold rates steady in December, saying further rate cuts could add to the risk of higher inflation becoming sticky. Fed officials generally judged that the uncertainty about the outlook was elevated, and they expressed concern about their ability to assess economic conditions because of the prolonged government shutdown.

Q3 Earnings: As of Nov. 21, 474 members of the S&P 500 have released fiscal third quarter results, with over 82 percent beating expectations. Aggregate earnings for this group are up 13.1 percent from a year ago, solidly ahead of the 7.2 percent projected year-over-year growth rate at the start of earnings season. The much better than expected quarterly results have led to an upward revision in expectations, with analysts now expecting 14.9 percent year-over-year growth. On the sector level, the biggest upside surprises came from industrials and healthcare. In terms of year-over-year growth, technology and financials continue to lead the pack.

Economic Roundup: The long-delayed September payroll report showed employment in the United States increased by much more than expected. The Labor Department said nonfarm payroll employment jumped by 119,000 jobs in September after a revised dip of 4,000 jobs in August. Economists had expected employment to rise by 50,000 jobs. The unemployment rate crept up to 4.4 percent in September from 4.3 percent in August. On the housing front, the National Association of Realtors (NAR) released a report showing existing home sales increased by much more than expected in October. NAR said existing home sales shot up by 1.2 percent to an annual rate of 4.10 million in October after jumping by 1.3 percent to a downwardly revised rate of 4.05 million in September. In other labor news, first time claims for U.S. unemployment benefits fell by slightly more than expected in the week ended Nov. 15, according to a report released by the Labor Department. The report said initial jobless claims dipped to 220,000, a decrease of 8,000 from the previous week's level of 228,000. Economists had expected jobless claims to edge down to 223,000. Meanwhile, private employers shed an average of 2,500 jobs per week during the four weeks that ended Nov. 1, according to fresh data from ADP Research. That was a narrower loss than the 14,250 private sector jobs shed by employers over the four weeks through Oct. 25.

Market View: Despite recent market volatility, we still believe the macroeconomic environment supports further upside through year end and into 2026. We expect steady economic growth with little chance of a near-term recession, earnings are likely to continue to grow at a solid pace, the Fed is likely to reduce rates, and fiscal policy is expected to become a tailwind in the quarters ahead. Additional supports include oil prices near four-year lows, booming AI capital spending, and favorable seasonal trends in the months ahead. While these factors won’t necessarily prevent occasional market pullbacks, collectively they are expected to keep the bull market intact.

The Week Ahead: The focus will continue to be on the delayed U.S. economic data releases, including the September retail sales on Tuesday and durable goods orders on Wednesday. Other reports of interest include the Conference Board’s consumer confidence index and the producer price index report, both due on Tuesday. The Fed speaking calendar will light with no speeches scheduled. On Wednesday, the Fed’s Beige Book report will be released. The third quarter earnings season will continue to wind down, with 11 members of the S&P 500 scheduled to report results. Markets will be closed for Thanksgiving on Thursday.

— By Michael Schwager, Chief Market Strategist, Managing Director

Definitions

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Standard and Poor's 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Nasdaq Composite Index is a broad-based capitalization-weighted index of stocks in all three Nasdaq tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.