November 8, 2025 Market Update
Market Recap: At the Edge of Optimism
Markets opened the week with gains in the S&P 500 and Nasdaq Composite, both reaching new record closing highs on the back of AI-related deals and strong third-quarter earnings from major tech companies such as Amazon and Nvidia. Stocks reversed course on Thursday after a report on U.S. job cuts reignited concerns about the strength of the economy and lingering worries over AI stock valuations. The decline continued into early trading Friday but reversed course again, after reports of progress on ending the government shutdown.
In the bond market, yields climbed as investors weighed shifting policy and fiscal concerns. The 10-year Treasury yield rose to its highest level in nearly a month on Wednesday, partly reflecting worries that a Supreme Court ruling overturning President Trump’s tariffs could widen the federal deficit.
Viewed together, trading this week suggests Mr. Market has become more sensitive to signs of strain. Equity investors appear wary of paying ever‐higher stock prices without clearer upside, and bond investors are uneasy about committing capital amid policy uncertainty. With the S&P 500 still near record highs and yields pushing upward, the line that separates optimism and caution could be shifting.
Market Performance
Market Commentary: Priced For Perfection
It has been said that markets climb a wall of worry, but lately they seem to be scaling one built for perfection. The S&P 500 keeps hovering near record highs, driven by enthusiasm around artificial intelligence, resilient corporate earnings, and expectations that the Federal Reserve will maintain its newly dovish stance. As a result, the Shiller price-to-earnings ratio, a valuation measure that smooths profits over ten years, has now topped 40 for only the second time in history, surpassed only by the late 1990s tech bubble.
Market bulls argue that modern companies deserve higher valuations because they are more efficient and less capital-intensive than those of past decades. But even that interpretation leaves little room for disappointment at these levels. Corporate profit margins are already near record highs, taxes are unusually low, the federal government’s deficits are growing, and global strife is escalating. With valuations this stretched, for stocks to continue upward, earnings will need to rise faster than the economy itself, which is not an easy feat to accomplish.
High valuations do not by themselves cause declines, but they are often accompanied by volatility and make future gains harder to come by. By some estimates, large-cap U.S. stocks could deliver less than 1% in annual returns after adjusting for inflation, which is less than the inflation-adjusted return offered by Treasury Inflation Protected Securities (TIPS), which are backed by the U.S. government.
For investors still building wealth, riding out valuation cycles is part of the journey. But for those already financially secure, this may be an opportune time to reassess how much stock market risk they need to carry. When stocks are priced this close to perfection, preserving wealth should, for some, take precedence over building it.
If you would like to discuss whether it makes sense to reposition your portfolio in light of the foregoing, I would be pleased to do so.
In Case You Missed It: Musk’s Trillion-Dollar Payday
Tesla shareholders voted to reinstate Elon Musk’s record-setting pay package, valued at more than $1 trillion if fully vested, reviving a deal that was struck down earlier this year by a Delaware court