The Fragile Equilibrium of the November Markets
The financial world is currently fixated on a singular number: 7,800. This is the ambitious price target Morgan Stanley strategist Mike Wilson has set for the S&P 500 by the end of next year. On this Sunday, November 23, 2025, the optimism feels palpable yet precarious. Just forty-eight hours ago, the markets closed a volatile week with a late-session rally, pushing the S&P 500 to 6,602.99, as investors processed the latest batch of data from a world still shaking off the dust of a historic 43-day government shutdown. I find the current consensus, which leans heavily into a soft landing narrative, to be dangerously thin on nuance. We are witnessing a bifurcated economy where the velocity of artificial intelligence spending is masked by the friction of a cooling labor market.
Inflation is slowing, yes. But the mechanism of that slowing is as much about the exhaustion of the American consumer as it is about the Federal Reserve’s restrictive policy. Per the recent flash PMI data, services activity remains robust at 55.0, but manufacturing is barely treading water. The institutional view from Morgan Stanley suggests that massive capital expenditure in AI will bridge the gap between today’s moderate growth and a 2026 productivity boom. I am less convinced. While Nvidia continues to print money, the rest of the S&P 493 is struggling to find a bottom-line justification for their massive infrastructure bills.
The Nvidia Sovereign Proxy
Nvidia’s Q3 earnings, released on November 19, were a masterclass in expectation management. Revenue hit $57.01 billion, a staggering 62.5 percent increase over the previous year. CEO Jensen Huang’s commentary regarding the Blackwell chip ramp-up was the sedative the market needed after a week of tech-led jitters. However, I look at the gross margins, which slipped to 73.6 percent from 75.0 percent a year ago. This is the first crack in the armor. It suggests that even the kings of the AI revolution are beginning to face the reality of escalating production costs and the complexities of sovereign AI builds.
The market’s reaction was complicated. We saw a rotation out of momentum trades and into defensive sectors earlier in the week, only for New York Fed President John Williams to stabilize sentiment on Friday by signaling that a December rate cut is still on the table. My analysis of the CME FedWatch Tool shows that the odds of a 25 basis point cut in December have swung wildly from 95 percent down to roughly 50 percent in a matter of days. This level of uncertainty is not what a stable bull market is built upon.
The Great Data Void and the October Mystery
One cannot discuss the current economic outlook without acknowledging the elephant in the room: the Bureau of Labor Statistics’ inability to collect October CPI data. Due to the 43-day government shutdown, we are flying blind through one of the most critical transition periods in recent history. The Fed is essentially making decisions based on imputed values and carryforward methodology. This is why I argue that the ‘soft landing’ is more of a statistical mirage than a confirmed reality.
We have a divided FOMC, with members like Stephen Miran pushing for aggressive 50 basis point cuts while others like Jeffrey Schmid remain hawkish. This internal friction, coupled with the lack of clean inflation data, suggests that the market is underpricing the risk of a policy error. The table below illustrates the stark contrast in sector resilience as we navigated the volatile week ending November 21.
| Sector | Weekly Return (%) | Year-to-Date (%) | Primary Macro Driver |
|---|---|---|---|
| Healthcare | +2.3% | +14.2% | Defensive Rotation |
| Consumer Discretionary | +2.1% | +11.5% | Rate Cut Optimism |
| Information Tech | +1.8% | +16.1% | Nvidia Earnings Echo |
| Energy | -1.5% | +2.8% | WTI Crude Weakness |
The Productivity Lag and the Two Speed Economy
The Morgan Stanley report highlights that AI is boosting business expenditures, but it glosses over the ‘Productivity Lag.’ Historically, it takes five to seven years for a general-purpose technology to translate into broad-based GDP growth. We are currently in year three of the generative AI cycle. My concern is that the capital being scorched today in data centers across the country is not yet generating the revenue required to offset the debt used to finance it. This is particularly true for firms like Microsoft and Amazon, which recently faced analyst downgrades due to concerns over the timeline for AI monetization.
I see a two-speed economy forming. One side is driven by the ‘hyperscalers’ who have access to cheap capital and an insatiable appetite for GPUs. The other side is the real economy, where small businesses are facing a 7.00 percent prime rate and a labor market that is finally showing signs of cooling. The October payrolls, which showed a surprise jump of 119,000 despite the shutdown, are an outlier that I expect to be revised downward significantly once the data collection catches up.
The next critical data point for every institutional trader will be the December 10 FOMC meeting. The Federal Reserve will have to decide whether to trust the disinflationary trend or hold firm in the face of a missing October dataset. Watch the 2-year Treasury yield, which currently sits at 3.52 percent. If it breaks below 3.40 percent before the December meeting, it will signal that the bond market has lost faith in the Fed’s ability to stay ahead of the curve. The 2026 outlook depends entirely on this December pivot.
