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While stretched valuations in AI-related names were widely cited as the trigger for the mid-November stock market hiccup, a more convincing explanation lies in the plumbing of the financial system.

The index gained 5% in the last five trading days of November to eke out a minuscule gain—but it was enough to score its seventh-consecutive monthly advance. The S&P 500 is back within spitting distance of its all-time high set in late October.

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With the second month of Q3 reporting complete, S&P 500 estimated bottom-up operating EPS continued to scream higher (Chart 1). At $72.40, it is now 8.2% above the level at the end of September (before Q3 earnings reports began). Percentage-wise, this is double the bounce we saw two months into the still historically very good Q2 earnings period. Q3’s YOY growth stands at 22%—the highest rate since the 2021 surge out of the pandemic.

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Tracking revenue and earnings beats to identify conditions where the Equal Weighted S&P 500 may outperform the Cap Weighted S&P 500 (or vice versa). Original study by Brian Weisenberger, guest contributor, along with Scott Opsal.

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Core, Select Industries, and Grizzly each navigated October’s mega-cap–driven market in distinct ways, with diversified positioning and disciplined risk management leading to resilient year-to-date results.

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In late September, our Very Long Term Momentum algorithm reversed higher after being on a downward track since 2024. There have been just ten other cases of this since 1957, and it has often been a stock market trap. Not an official signal, but worth watching.

With equities trading at extreme valuations, Select Industries remains diversified among styles and themes.

Monetary and fiscal policies continue to be supportive of risky assets—and the favorable seasonal window is upon us.

An 8.5% gain, modest by Nvidia standards, propelled that firm to a congruent 8.5% weight in the S&P 500—a new record. The semiconductor firm also achieved the stock market’s first $5 trillion valuation last month. That’s a little larger than the annual economic output of Germany—or the combined output of Central and South America.

Small Cap Growth continued its surge over Small Cap Value. From March forward, SC Growth has gained 30% versus +18% for SC Value.

The Russell 2000 (lower-quality firms) has gained 12% YTD, while the higher-quality S&P 600 has advanced only 4%. Since we need P/E ratios to calculate this measure, firms with no earnings are excluded. For that reason, the ratio continues to sag.

The Up/Down ratio reads 2.14. We have to go all the way back to October 2021 to find a higher “one-month” ratio. Aside from the Q1-25 hiccup, the ratio has advanced the past seven quarters and now sits at a level generally associated with a robust economy.

There is consistent evidence that bank stocks behave like macro proxies. Both domestically and in other major economies across the globe, there is a strong and steady link between lending conditions and subsequent economic activity.

Q3 was characterized by two traits that typically favor a passive investment process while creating a drag for active portfolios: Convincing leadership of growth stocks and high absolute returns.

Halloween’s eerie vibe came early for investors in regional banks, as there were several reports of large and disturbing credit issues on October 16th—a frightful day that drove the group to a cumulative 14.3% shortfall versus the S&P 500.

Read this week's Major Trend.