Global markets weathered another volatile week, with equities moving lower in choppy trading and enduring their toughest run since the tariff-driven selloffs in April. Technology stocks remained the center of gravity, and even a strong earnings report from NVIDIA couldn’t hold back the selling pressure on Thursday. Contributing to the risk-off mood is the lack of clarity on the Federal Reserve’s next move. Unlike in the weeks before the last two Fed meetings, the committee’s intentions have become unusually difficult to read. The data blackout from the shutdown might finally be catching up with the stock market. Although the recent correction may feel jarring, the speed and magnitude of this year’s rally made a mood reset useful and potentially healthy.
The market story right now can’t be separated from the economy’s data blind spot. Unprecedented by modern standards, the government shutdown halted October data collection, resulting in monthly reports being entirely skipped. The central bank and market strategists are navigating a foggy path as we head into the December meeting.
The September jobs report arrived six weeks late and showed conflicting signals. Payroll growth looked solid. At +119K, it beat all expectations, and it’s hard not to anticipate a hefty downward revision. At the same time, unemployment climbed to 4. 44% and is expected to reach 4. 5% in the next data release. More important than these stale numbers is what was missing. The Fed won’t have either October or November inflation data and will only see a partial October jobs report after it votes. For a committee that bases policy on timely labor and price metrics, this is a significant challenge.
The minutes from the Fed’s October meeting even acknowledged concerns about “the ability to accurately assess economic conditions,” an unusually blunt admission. There were already loud grumbles about the Fed driving policy through the rear-view mirror, and now they might have to use a crystal ball just to see into the past. Markets are pricing in uncertainty, and the probability of a rate cut has swung from nearly 100% to 30% and back to 70% in just weeks. When the Fed can’t see clearly, investors can’t either.
The market’s anxiety is further compounded by the AI industry’s emerging structural risks, which have begun to run deeper than “look at the Case-Shiller”. Several mega-cap companies, starting with Oracle, have begun taking on more debt to finance enormous AI-related capital spending. This raises questions about margins, free cash flow durability, and the long-term payoff horizon. The jump in Oracle’s credit default spreads (CDS) last week is one example of these worries spreading beyond the stock markets. The weird public comments from Sam Altman and Sarah Friar over the past few weeks aren’t inspiring confidence amidst the rotations.
NVIDIA’s earnings showed outstanding current demand but also pointed to slowing revenue-growth expectations over the next several years. Nvidia’s CFO, Colette Kress, strongly dismissed the concerns over GPU chip depreciation. The AI story is still one of the strongest bull cases for the market, but there are some cracks in the narrative. The market is clearly recalibrating from “infinite money” to “strong upside,” and that shift alone is triggering profit-taking.
As AI-linked mega-caps lose altitude, sectors that have been neglected, such as healthcare, energy, and materials, have stepped into the spotlight. This rotation certainly isn’t random. These sectors offer relatively attractive valuations, more stable cash flows, and in some cases direct benefits from higher-for-longer interest rates or strong commodity demand. International mid-caps and emerging-market equities are on the receiving end of increased interest.
What This Means for Investors
Despite the noisy week, the broader message hasn’t changed. Some volatility should be expected after a ~40% rally. This isn’t catastrophic. FactSet data shows that S&P 500 revenue and net profit margins are flying high. So, while volatility may feel unsettling, the underlying story is less about crisis and more about a long-overdue reset after an unusually smooth rally.
Diversification is especially valuable now, as sector leadership rotates and rate expectations wobble. We might not get a December rate cut, but the Fed is still likely to cut rates next year. Staying balanced and patient remains the smartest move in a noisy market. Depending on how long and deep this AI/tech reset lasts, inflation-adjusted returns need to be front of mind. Cash and bond returns are losing some of their real purchasing-power advantage as rates meander lower and inflation hovers around 3%.
Think carefully about forward real returns on your cash, bonds, and stocks. As stocks fall, their forward returns will improve, presenting better opportunities over more conservative (but safer) options. As Powell is now fond of saying, there is no risk-free path. Inflation isn’t going away, and lower rates will leave you with little real return in yield products. This pullback may present opportunities to deploy cash in a strategic rebalance (if you didn’t do it when I suggested it more than once a month for the last few months). If this three-year bull market has more stories to tell, these are the times to plant a flag with fresh cash.
Market Activity
Stocks
Fixed income
Cryptocurrency
Cryptocurrency gets its own section today because it has been puking all month, but I won't make this a habit. The average Bitcoin ETF holder is underwater, and many investors are running for the hills. I guess they thought WAGMI.
Unlike many other pullbacks, the cost to mine Bitcoin is significantly higher than in the past, and now exceeds the value of each coin. Long-term unprofitability will cause miners to shut down and shrink the network.
The price of Bitcoin is also not far off from MicroStrategy’s average cost basis.
Source: Koyfin
For the uninitiated, the current drawdown in Bitcoin is about average, but…
Source: @bespoke
Economic Reports
The long-awaited September jobs report dropped on Thursday. We also have a long backlog of other data, such as weeks of initial and continuing jobless claims. The charts below display the releases as clearly and contextually as possible.
We still don’t have data on October jobs numbers or unemployment yet, but the initial and continuing claims are a good indication of how we might be faring. Initial claims appear normal, nothing scary there. Continuing claims are rising and have reached the highest level since November 2021. To put that in context, the second chart is initial and continuing claims as a percentage of the total labor force.
Lastly, we have nonfarm payrolls, which came in significantly ahead of expectations. Despite that, the unemployment rate rose to 4. 44%, and will likely increase over 4. 5% in the next reports. I expect September’s payroll report will have a healthy revision lower when we get new data next month, but it's still a good sign that the job market might have some life left.
Next week
Earnings Releases
Despite the market sell-off, revenue and profits are flying. S&P 500 revenue growth is at a 3-year high, and net profit margin is the highest since 2009 (earliest data available). Nvidia and the tech sector are doing some serious heavy lifting to make these numbers happen.
Home Depot was a notable miss on earnings, and their perspective was pretty dour on the housing market. Commentary pointed to anticipation for further price declines.
Source: FactSet
Source: FactSet
