November Market Outlook: The Average Stock Beat Big Tech

Our November market outlook starts with a reversal. In October, technology slipped while most of the rest of the market moved higher, and the average stock beat the big names that had carried the market for most of the year.

In this month's View from the Ranch, Gregg and Brad walk through what changed, where the AI spending debate stands, and what they're watching as the year winds down. If you'd rather read than watch, this is a written summary of the conversation.

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What Happened in October: A Market Rotation

October reversed the pattern of most of the year. Through much of 2026, large-cap technology and a few big names did the heavy lifting. Last month, tech pulled back while nearly every other sector and the broader market moved higher.

That was close to the opposite of what the market had been doing, with valuations, earnings, and some pushback on tech spending all playing a part. After a difficult September, it was good to see most of the market improve. The real test is whether the broadening of the market sticks.

Why the Average Stock Beat Big Tech

The clearest sign is the gap between two versions of the same index. When every company in the S&P 500 gets the same weight, the index did far better than the regular version, which is dominated by the largest names.

That gap shows how much a handful of technology companies move the headline number. Market breadth works like a football team: it's healthiest when everyone on the roster contributes, not just the stars. It also flipped the story from September, when the index looked fine but most stocks were falling. We called that a stealth pullback, and in October the script ran the other way.

For diversified investors, it's a reminder that a broad portfolio and the S&P 500 can tell different stories in any given month.

Falling Bond Yields Helped the Broader Market

Falling bond yields were the main driver. Yields appeared to peak, at least in the short term, in early October, and the decline through the rest of the month let liquidity return to the market. That brought some relief for borrowing costs and mortgage rates, after yields had climbed sharply over the previous couple of months. For background on how bond prices and yields move together, see our guide.

Defensive sectors led. Utilities, consumer staples, health care, and energy outperformed, and investors seemed more focused on Treasuries as a place to shelter than on inflation, as they were a few months ago. Health care has become the sector with the best near-term earnings growth potential, and utilities now have a growth angle from data center power demand.

Oil stayed relatively high for most of the month while yields fell, so the two stopped moving together. That is a hopeful sign that oil can eventually return to a more normal level.

Big Tech Spending and the Free Cash Flow Question

October's weakness was concentrated in technology and communication services, and the explanation comes down to spending. The communications sector is dominated by Google and Meta, two of the biggest spenders on the Street. Both are reporting very large profits and revenues, but their free cash flow has turned negative as they pour money into AI buildouts.

That means more debt and, increasingly, more stock issuance to pay for the work. The market's response has been to punish companies it believes are spending too much before the returns show up. Amazon was the contrast. Its numbers were solid, if not spectacular, and its spending looks more justified because of strong demand for AWS capacity.

Valuations have adjusted too, though no one is rushing to call some big tech names bargains yet.

Is the AI Trade Like 1999?

After October, some investors are asking whether AI stocks are cracking and whether this is 1999 all over again. The comparison only goes so far. Today's leaders are mature companies earning more than any in history, at relatively acceptable valuations. In the dot-com era, prices ran far ahead of companies with no earnings at all.

That doesn't mean a smooth ride. Expect stops and starts, because volatility is a package deal. Our longer-term view is that the largest companies, including the big cloud and cybersecurity names, are the ones best positioned to benefit.

The caution is further down the ladder. The smaller, speculative names that have surged on the AI theme are the ones to be wary of, and chasing them is risky. It resembles the flood of Bitcoin spinoffs. For AI exposure, the more established route has been the large firms, the builders of data centers, and the utilities powering them, the classic picks-and-shovels approach. We get into this in much more detail in the episode.

Strong Economy, Grumpy Consumer

The economy is performing better than the mood suggests. Most companies beat earnings expectations this season, growth has been solid, and the labor market has held up without major layoffs. Consumer spending also remains solid.

Even so, consumers are grumpy, and the reasons are easy to see: gas, groceries, restaurant bills, and housing. Mortgage rates jumped back up this fall and home sales have been weak, though rates have started to ease. Mortgage rates aren't far from historical averages. The issue is that people got used to the very low rates that followed the financial crisis.

Gas prices can fall faster than everything else, since other prices tend to stay sticky. For most people, getting inflation back near the Fed's target would feel like a win.

The Fed, Oil, and Inflation

The Fed held rates steady in October, sticking to its inflation target while its new chair, Warsh, works out how much to communicate. Inflation came in a little hotter, which traces back to higher oil prices from conflicts in the Middle East.

Without war and oil, inflation tends not to be a problem. We believe prices can ease as more supply arrives from outside OPEC. The UAE has left the group, and we believe Venezuela could eventually follow, which would add supply and pressure OPEC to produce more. That's our view, not a certainty, and oil remains volatile: a sharp drop could reverse on any new concern.

On the bond side, demand at Treasury auctions has strengthened, including from foreign buyers, as the big refinancing cycle winds down. The episode goes deeper on how oil, yields, and inflation connect.

November Market Outlook: What History Suggests

November has historically been a strong month for the major stock indexes. It also kicks off a stretch of the calendar that has been historically favorable. The days around Thanksgiving have tended to be bullish, while the first two weeks of December can see some weakness from tax-loss selling.

History isn't a promise. The 2018 midterm year is the cautionary example, when the market fell sharply late in the year. The Fed was raising rates late in the cycle while also shrinking its balance sheet, which drained liquidity. That setup doesn't look like today's, since the Fed is neither tightening nor easing aggressively and isn't playing catch-up on rates.

The risks to the seasonal pattern are a spike in oil from a major escalation in the Middle East or runaway bond yields.

What We're Watching Heading Into the Holidays

The conditions we are looking for are fairly simple: continued participation beyond a handful of companies, steadier oil, and stable interest rates. Here's the short list:

• Whether market breadth keeps improving instead of reverting to a few large leaders

• Whether bond yields stay stable after October's pullback

• Whether oil settles after its recent volatility

• Whether big tech's spending starts to show up in cash flow

• How the usual seasonal patterns play out around Thanksgiving and early December

  
  

Have questions about how any of this applies to your own portfolio? Contact our team or schedule a conversation.