A Turnaround Tale

 Quick Take:  The longest U.S. government shutdown in history ended in November, which proved to be a turbulent month despite ending higher than it began.

November shaped up to be a volatile month, with major indexes experiencing their biggest swings since April as markets eyed lofty prices of AI companies. [1] Tech stocks drove considerable selling — especially names that have been big beneficiaries of AI enthusiasm. Before Thanksgiving, the S&P 500 was down 4% and the Nasdaq Composite was down 7% from its October record high. [2]

Investors had plenty to be thankful for as losses were erased during the best Thanksgiving week performance since 2012.[3] By the end of November, the S&P 500 had clawed back its losses to eke out a small gain.[4]  Investors seized on dovish comments from Federal Reserve (Fed) officials, which encouraged them to buy the dip.[5] That means the index has now produced seven consecutive monthly advances, although the tech-heavy Nasdaq fell 1.5% for its first monthly decline since March.[6]

Rate Cut Hopes Spur Rally

After a divided Fed cut rates by a quarter point in October, Federal Open Market Committee (FOMC) chairman Jay Powell had warned that another cut in December was not a foregone conclusion, particularly amid a lack of any economic data while the government shutdown continued.[7]

The narrative flipped again, however, in November.[8] After tech stocks had taken a beating through much of the month with the S&P 2.7% off its end-October record high, investors seized on dovish comments from Fed officials, which encouraged them to buy the dip.[9]

Fed governor Christopher Waller said he supported a December rate cut, amid little evidence of rising inflation and a soft and weakening labor market.[10] New York Fed president John Williams also argued for another quarter-point cut.[11] Markets indicated around a 75% chance of a December rate cut compared with about 40% before these comments.[12]

Return of Bonds

Treasury bond yields trended lower in November.[13] In the run-up to Thanksgiving, the yield on the 10-year note slipped below 4% for the first time in almost a month, reflecting a growing belief that the Fed would cut rates in December.[14] Higher market volatility also likely encouraged investors to look for some safety in Treasuries. [15]

Dovish Fed comments sparked the rally in bonds, which intensified on a report that White House National Economic Council Director Kevin Haskett is the favorite to replace Jerome Powell as Fed chair.[16] A delayed September jobs report appeared to present no new obstacles to a rate cut in December.

The US bond market is heading for its best year since 2020, with a modest advance for November after gains in eight of the previous 10 months.[17] Conditions have been favorable for bonds, as inflation pressures moderate and the hopes for further interest cuts stay alive.[18]

Source: https://www.wsj.com/finance/bonds-are-heading-for-the-best-year-since-2020-02c5738b?mod=series_stockmarket

Bloomberg’s Aggregate Bond Index, which tracks a benchmark fixed income basket, has returned around 6.7% in 2025, outperforming shorter-term T-bills.[19] It no longer pays well to keep money parked in short-term cash-like instruments, and bonds have provided better returns.

Longest Government Shutdown Ends

On Nov. 12, the government ended a 43-day shutdown, the longest ever recorded.[20]  Federal workers returned to duty, key agencies resumed operations, and services critical to air travel had some time to recover with holiday travel just weeks away.

The deal extends funding through January 30, when the government will have to agree to continue funding spending.[21]

The shutdown had left major economic agencies with a significant data backlog. The reopening “restored” the flow of data on jobs, inflation, and spending.[22] However, some gaps remain, and the October jobs and CPI reports might never be released.

Economists estimate the shutdown shaved about 0.1% off GDP per week, though much of the lost output could be recovered in the months ahead. [23]   Household balance sheets may improve somewhat as furloughed workers get back pay, potentially freeing up some holiday spending.

Source: https://www.bloomberg.com/news/articles/2025-11-21/us-consumer-sentiment-falls-to-one-of-lowest-levels-on-record

Consumer surveys captured the shutdown’s chill on sentiment. The University of Michigan’s index fell sharply: sentiment dropped to 50.3 in early November (near a 3½-year low) as Americans fretted over the shutdown’s fallout that ranged benefit cuts to grounded flights and delayed food stamp payments.[24] The shutdown stoked real unease among consumers, especially those in lower-income brackets.

Holiday Consumer Spending

Even as sentiment softened, Americans kicked off holiday shopping in earnest. Black Friday online sales hit $11.8 billion, a 9.1% increase over 2024, in large part enabled by new AI-driven shopping tools.[25] Analysts at Adobe and Mastercard noted that consumers used chatbots and recommendation engines to find deals, causing traffic to retail sites to soar (Adobe saw an 805% jump in AI-related traffic vs. last year). [26]

Spending rose 7.7% during Cyber Week (the five days from Thanksgiving to Cyber Monday) as consumers shopped for deals. [27] The National Retail Foundation counted 202.9 million shoppers over Thanksgiving weekend – a record turnout.[28] In-store traffic was robust too: roughly 129.5 million Americans shopped in brick‑and‑mortar stores that weekend (about 3% higher than last year). Shoppers even spent more on average as well, (about $338 per person vs. $316 last year) indicating stronger budgets among many buyers.

Source: https://www.bloomberg.com/news/articles/2025-11-24/how-the-k-shaped-economy-is-hurting-everyone-but-the-rich?embedded-checkout=true

The wealthiest are still doing the heaviest lifting. Spending is more concentrated among the wealthiest 10% of Americans than ever, in fact driving around half of all spending. [29] The top 20% make up nearly two-thirds of spending.[30]

Payrolls processing firm ADP reported an intensified U.S. Labor Market slowdown in November, with small businesses being hit the hardest.[31] We will likely continue to see the labor market fluctuate as we head into the new year.

Looking Ahead

With December underway, markets are wrapping up 2025 with a strength that may have taken some by surprise. After a spring pullback, the S&P 500 is once again within striking distance of record highs. Sentiment and positioning can shift quickly, and throughout the market volatility, we remain focused on aligning each client plan with long-term goals. As always, we’re here to provide insight, guidance, and partnership—through every market season. Wishing you a happy and meaningful holiday season with friends and family!

From your friends at JSF