NOVEMBER 2026 MARKET INSIGHTS

By: DOUGLAS A. RILEY, CFA, PORTFOLIO MANAGER

This year October provided mostly tricks but few treats. The outcome of the recent Brazilian Presidential election, where socialist leader Lula-de-Silva won a fourth term, could be viewed as a trick or a treat, depending on your viewpoint but either way seems likely to hinder U.S.-Brazil diplomatic and economic relations. One treat, if you can call it that given it was the expected outcome, was that the Federal Reserve did not raise rates at its October 28^th meeting, despite citing inflation as still too high in the wake of unfavorable data. But Fed Chair Warsh made good on his promise, upon taking the helm, of reducing the number of rate-decision meetings. The committee will continue to hold eight meetings annually but one meeting in 2027 and two in 2028 will be reserved for only broad policy discussions, i.e., non-decision meetings at which no policy statement will be issued. While subtle on the surface, it marks a decisive change of internal operations and how the Fed communicates to the market.

Despite recent stepped-up diplomatic efforts, including a direct phone discussion between Trump and Putin, the Russia-Ukraine conflict drags on with the brief October pause in hostilities broken by renewed strikes from both sides. Amidst regular reports of ongoing diplomacy between Iran, Gulf States representatives and the U.S., Iran continued to attack tankers in the Strait of Hormuz, sinking several of them, while the U.S. indicated the possibility of renewed military strikes post-election. The Houthi’s in Yemen continue to pressure the Saudi’s militarily, the latter seemingly unwilling to commit to a full-blown offensive. While Russia/Ukraine was not Trump’s doing, the administration now faces primary responsibility for developments in the Middle East, where Iran seems to believe it has the upper hand. Perhaps, it is part of a grander plan yet to come into focus, but, in our view, with each passing week operation “Epic Fury” looks increasingly like a strategic miscalculation. The unpopularity of the Iranian military confrontation may prove to be a significant factor in the outcome of the upcoming U.S. mid-term elections that will decide the composition of Congress for the final two years of the Trump administration.

On the other hand, the picture may not be as dark as many forecasts suggest. Notwithstanding the wallet squeeze from high motor fuel and distillate prices, the domestic economy looks fine with the initial reading for third quarter real GDP showing a stronger than expected 3.4% annualized increase^[1]. But the imbalance, with incremental growth driven extensively by the AI/Data Center buildout, is a potential Achilles heel. Though downward revisions to prior data resulted in a weak three-month average gain in non-farm payrolls, the unemployment rate at 4.2% is below where it was a year ago while the labor force participation rate ticked up in September to 61.8% (vs. 61.6% expected) and the latest four-week moving average of new unemployment claims fell to 196.5k, below the post-Covid low in 2022^[1]. Both the Conference Board and U. of Michigan Consumer Surveys for October came in ahead of forecasts with the Conference Board Expectations Index particularly strong^[1]. Inflation, though, remains challenging with both CPI (Headline and Core above 3%) and especially PPI (Headline and Core) for September coming in hot YoY while the ISM Prices Paid indexes remain elevated above 70¹.

Bond yields had a wild ride in October, with the 10-year treasury closing -36 bps lower at 4.92% dropping steadily after topping at 5.30% early in the month, despite a renewed jump in oil prices^[1]. It appears that a large short position by hedge funds in treasuries was, in part, supporting the AI trade, thus the two (rates and tech stocks) fell in tandem as equities were sold and treasuries were bought^[1]. While not the whole story this dynamic may have contributed. Corporate spreads widened in October by the most since February, topping 90 bps on the Bloomberg Aggregate with much of the rise driven by ballooning spreads on Hyperscaler and datacenter bonds where credit issuance has been running at a fever pace in 2026 and concerns of excess capacity have been growing^[1]. Bond performance, overall, was solid in October with both Core (US Aggregate) and short-term credit indices finishing in positive territory^[1].

Stocks were decidedly mixed, with REITS and the Large Value Index benefitting from the fall in rates^[1]. The Small Cap Index suffered relative to large caps early in the month but finished nearly flat after rebounding in the second half as rates fell^[1]. Large Caps stocks, broadly, were hurt by the sharp decline in Technology/AI stocks, financial firms tied to Hyperscaler financing and Industrials benefitting from the AI buildout, offset by strong performance from previous year-to-date laggards as investors rotated rapidly but stayed invested^[1]. Weakness was most acute in the large cap growth space, where the Technology sector makes up over 50% of the benchmark and semiconductor and Media stocks (GOOGL, META) suffered double-digit declines^[1]. The Large Value Index was helped by double-digit gains in Energy, the second largest sector in the benchmark, and outperformance from defensive sectors (Utilities, Healthcare, Staples)^[1].

Bloomberg Catholic Values Indices	Period Total Return
	Month %	QTD %	YTD %
Large Cap 1000	-1.61	-1.61	10.82
Large Cap 1000 Growth	-3.96	-3.96	7.82
Large Cap 1000 Value	6.45	6.45	20.58
Small Cap 2000	-0.10	-0.10	12.15
World ex-US Large & Mid Cap	-3.68	-3.68	10.80
US 1-3 Year US Government/Credit	0.92	0.92	1.51
Bloomberg US Aggregate Bond	2.41	2.41	-0.55
US REIT 3000	5.15	5.15	13.84

Contrary to popular belief, October is not even close to the scariest month for equity investors, ranking 7^th since 1950 with an average monthly return for the S&P 500 Index of 0.9%^[1]. This year it was down slightly but that was entirely driven by the brutal selloff in the AI trade^[1].

Fortunately, November kicks off the best three-month period for equity returns, with an average monthly gain on the S&P 500 of 1.4%^[1]. Moreover, in 18 mid-term elections dating from 1954 the S&P 500 Index was higher 100% of time 12 months after, with an average gain of 15.4%^[2]. The gain is even better when the incumbent party loses a unified Congress, which is the current consensus view. However, given the frequency during the current market cycle with which historic norms have proved an unreliable guide would it really be surprising if the perfect string were broken?

[1] Source: Bloomberg

[2] Source: BNP Paribas Equity Research estimates