Our Research

Stocks: Strong Mag 7 Earnings Buoy U.S. Large Cap Indices, But Narrow Leadership Is Worth Watching; A More Hawkish Than Expected FOMC Tamps Down Small Cap Sentiment; U.S. Dollar Rebound Problematic For Foreign Stocks Should It Persist. 

Download Weekly Market Commentary | November 3 2025

What We’re Watching:

• The Institute for Supply Management (ISM) Services index for October is released Wednesday and is expected to improve to 50.7 from 50.0 in September. A reading above 50 indicates expansion or growth, below 50 indicates contraction. 
• With the U.S. government shutdown ongoing, we are not expecting the October Nonfarm Payrolls report to be released this Friday. As a result, market participants will likely pay more attention to the ADP Employment report slated to be released on Wednesday, with the consensus estimate expecting 27k jobs.  
• The University of Michigan’s preliminary monthly Consumer Sentiment survey for November is released Friday. The reading is expected to fall modestly to 53.0 from 53.6 in October.  

Key Observations

• The S&P 500 posted a weekly gain, but that upside masks narrow leadership under the surface as a few names in the Magnificent 7 cohort of stocks were responsible for buoying the broader index. For the second consecutive week, investors appeared eager to crowd into names with both quality and momentum characteristics as a way to play both offense and defense. Should this persist, the ‘Mag 7’ cohort and the information technology sector at large would likely continue to see inflows. 
• Smaller capitalization stocks saw profit taking mid-week as the probability of a December rate cut was priced out, prompting traders renting these stocks as a play on easier monetary policy to jettison positions. We were coming around to the idea that small and mid-cap (SMid) stocks could play catch-up with the S&P 500 into year-end, but we no longer view that as a high probability outcome and expect investors to continue to crowd into large caps and revisit SMid in early ‘26. 
• U.S. Treasury yields rose sharply after FOMC Chair Powell called into question a rate cut in December, with the largest moves occurring in the 2- to 7-year portion, or the belly, of the yield curve. We have viewed bonds in the belly as expensive given our outlook on inflation and economic growth in the coming year, and the jump in yields brings these bonds closer to fair value. The closely watched 10-year Treasury yield closed the week at 4.08% but remained range-bound between 3.95% and 4.20%.  

What Happened Last Week:

Stocks: Strong Mag 7 Earnings Buoy U.S. Large Cap Indices, But Narrow Leadership Is Worth Watching; A More Hawkish Than Expected FOMC Tamps Down Small Cap Sentiment; U.S. Dollar Rebound Problematic For Foreign Stocks Should It Persist. 

Narrow Breadth Unlikely To Derail The Rally But Worth Watching. The S&P 500 churned out a 0.7% weekly gain and traded above 6,900 for the first time mid-week in the lead-up to the FOMC’s decision, but under the surface market breadth left something to be desired. This lack of breadth has been the case in recent weeks as capital has rotated into and within the information technology sector with the Magnificent 7, specifically, sucking much of the air or, perhaps more accurately, liquidity out of the market. This is evidenced by the equally-weighted S&P 500 falling 1.7% last week, and the Bloomberg Magnificent 7 index, which is equally weighted across this cohort of stocks, rising by 3.3%. This dispersion highlights the S&P 500’s dependence on the largest 7 to 10 names in the index to deliver upside, and while we would like to see more stock participate, it can’t come at the expense of the Mag 7. 

Impressive Quarterly Results Continue To Roll In.  With almost two-thirds of S&P 500 constituents having now reported quarterly results through last Friday, we can’t help but be impressed with what we’ve seen up to this point. On the sales/revenue front, over 67% of companies reporting have bested the consensus estimate, with sales growth of 8.4% surprising to the upside by 2.3%. Regarding earnings per share, over 82% of those posting results have topped the consensus estimate, with earnings growth of 10.3% surprising to the upside by 4.9%. These results are more impressive when one considers that estimates moved higher throughout the 3^rd quarter, setting a higher bar to clear. At the sector level, the most sizable earnings beats/surprises have come out of consumer discretionary, health care, and information technology stocks, which have, on average, posted upside earnings surprises of 8% or more. 

‘Magnificent 7’ Earnings, Sales Top Estimates, But Capex Guidance Garners Headlines. Five Magnificent 7 names, which together account for almost 25% of the S&P 500 posted quarterly results last week. Alphabet (GOOG/GOOGL) saw its share price rise sharply after surpassing even the loftiest of expectations and producing its first $100B+ revenue quarter ever, and the stock ended the week higher by 8.1%. Meta Platforms (META) fell 12.1% on the week and was the worst performer in the Mag 7 after raising the lower end of guidance for AI capex in the coming year and stating that “capex dollar growth in 2026 will be notably larger than in 2025” as the company continues to spend on AI infrastructure. Microsoft (MSFT) topped the consensus estimate for sales and earnings and guided 1Q capex higher by over $4B, and while the stock dropped after reporting it fell only 1.1% on the week. Amazon shares jumped on the heels of its report and ended the week higher by 8.9% due to strong performance out of its Amazon Web Services (AWS) unit, and the company guided to sales topping $200B next quarter, which would be its first $200B+ revenue quarter ever. Apple (AAPL) initially saw its stock climb after posting results and issuing strong guidance for the current quarter, and shares closed the week higher by 2.8%. Results from these five behemoths alleviate some concerns surrounding their ability to turn elevated AI spending into profits and should buoy the S&P 500 into mid-November when Nvidia reports. Our takeaway is that with capex on AI infrastructure expected to rise next year from lofty 2025 levels, the tailwinds behind some of the best performing themes this year appear sustainable well into next year.  

Small Caps Slide As Rate Cut Hopes Are Recalibrated. On the heels of FOMC Chair Jerome Powell’s press conference Wednesday, U.S. small cap indices were noticeably weaker. The pullback in small caps was attributed to the Chair’s opening remarks where he went out of his way to sound hawkish by stating that a rate cut in December was far from certain. Fed funds futures began to price in a lower likelihood of a December cut, which translated into selling for the most heavily indebted or highly levered publicly traded companies, many of which fall into small cap indices. With uncertainty surrounding a December cut likely to persist, investors may continue to favor and deploy capital into large-cap winners through year-end. From our perspective investors have fewer reasons to go out of their way to scoop up lower quality higher beta stocks in the S&P 600, specifically, until the path forward for rates becomes clearer.      

Foreign Markets Lag As Dollar Rally Poses A Headwind. Both developing and developed markets abroad have performed quite well year-to-date, with the MSCI Emerging Markets (EM) index and MSCI EAFE developed markets index higher by 33.5% and 27.2%, respectively, through last week. However, the path taken by the U.S. dollar this year has played a major role in the performance of international markets as dollar weakness has been a boon for foreign stocks. When hedged back to the U.S. dollar, the MSCI EAFE’s total return in 2025 drops from 27.2% to 19.4%, which is still respectable, but more comparable to the S&P 500. The MSCI EM index has also benefited from a weak dollar but to a smaller degree as the hedged MSCI EM has still posted a 30% gain so far this year. We remain constructive on emerging markets into 2026, but excluding Japan, we are less positive on developed markets abroad as we expect the currency tailwind that has boosted returns this year to turn into a modest headwind in the coming year as economic growth in Europe and the U.K. remains lackluster, leading to capital flows back into U.S. assets.  

Bonds: Minimal Movement For Treasury Yields On The Week Allows Holders To Clip Coupons; FOMC Set To Cut The Funds Rate Again This Week; Inflation Still Elevated, But Isn’t At Risk Of Running Away To The Upside.

FOMC Delivers Rate Cut, Announces The End Of QT As Expected, But Treasury Yields Rise As A December Cut Is Called Into Question. The Federal Open Market Committee (FOMC) concluded its two-day meeting last Wednesday and as expected delivered a 25-basis point cut to the Fed funds rate, taking the target range to 3.75% to 4%. The FOMC also announced it would conclude running down the size of its balance sheet, a process referred to as quantitative tightening (QT) on December 1, a move that was also widely expected by market participants. In the lead-up to Wednesday’s post-meeting press conference, Fed funds futures were ratcheting downward expectations for a December cut and moved lower after Chair Powell stated that a December rate cut was “not a foregone conclusion. Far from it”. While this proclamation should have come as no surprise given the FOMC values keeping its options open, the market had uber-dovish expectations for the path forward for rates, so the Chair’s comments forced a recalibration of those expectations. Fed funds futures now price in just a 62% chance of another cut in December, down from around 96% the day before last week’s FOMC meeting began. Treasury yields across the curve rose in the wake of Chair Powell’s press conference, with the 2-year yield rising 9 basis points on the day and on the week, while the more closely watched 10-year yield rose from 3.99% on Tuesday to 4.06% Wednesday before closing out the week at 4.08%. The rise in Treasury yields acted as a drag on higher quality, longer duration investment-grade corporate bonds over the balance of the week, while lower quality, shorter duration high yield bonds held up much better. 

Foreign Central Banks Standing  Pat On Rates – For Now. While the FOMC meeting took center stage stateside, the European Central Bank (ECB) and the Bank of Japan (BoJ) have also held policy meetings in recent weeks, and to little fanfare as both central banks left policy rates unchanged. This was the 3^rd consecutive meeting at which the ECB kept its deposit rate at 2%, with the central bank citing in-check inflation while the Eurozone economy continues to grow as rationale for standing pat. Market participants don’t expect further policy easing out of the ECB over the intermediate term and in response to the ECB’s inaction the euro weakened modestly versus the U.S. dollar while yields on German bunds rose by just a few basis points on the day. The BoJ met the prior week, and policymakers left its benchmark interest rate unchanged at 0.5%, which met market expectations. The central bank is expected to hike the benchmark rate in the coming months in response to a weaker Japanese yen relative to the U.S. dollar, but provided market participants with any insight as to when that move might occur. In theory, the FOMC cutting the Fed funds rate should provide a bit of breathing room for the BoJ to wait to hike, but the yen continued to slide versus the U.S. dollar last week after the Fed funds rate was lowered. Not to be overlooked, the Bank of England meets this Thursday, and while inflationary pressures have eased in the U.K. in recent months, the central bank is expected to leave its base rate unchanged through year-end before resuming cutting rates in early 2026.