November 2025 Market Commentary

Equity markets advanced in October, led by technology's continued strength. The NASDAQ Composite Index jumped 4.7%, while Emerging Markets posted their tenth straight monthly gain, fueled by optimism around AI-driven investments. At the sector level, Technology rose about 6%, with Communications Services up 4%, whereas Materials fell 5%, and Energy, Consumer Staples, Real Estate, and Financials all declined. Fixed Income offered stability, as the U.S. Aggregate Bond Index edged up 0.6% for the month and 6.8% year-to-date.

"Peaks are a process in which confidence is tested over and over before investors ultimately concede that they were suffering from ‘hopeful delusion'.

-Peter Atwater

The Long Goodbye to Investor Optimism

While I'm not calling for an imminent market top, history reminds us that markets eventually peak —and the process often unfolds gradually rather than abruptly. Calling market tops, like bottoms, is notoriously difficult. While warning signs often appear, they're far clearer in hindsight, and few investors, professional or otherwise, manage to get it right more than once.

Atwater's quote underscores the psychological journey investors endure during market tops: confidence erodes gradually, not suddenly, as repeated disappointments chip away at optimism until reality sets in. This is highly relevant today as both the S&P 500 Index and the NASDAQ Composite Index reached all-time highs in October despite mounting headwinds such as slowing global growth, persistent inflation pressures, and geopolitical uncertainty. For example, NASDAQ's surge on AI enthusiasm contrasts with weakening fundamentals in cyclical sectors, and the divergence between luxury spending and consumer staples reflects a K-shaped economy that could challenge broad-based growth. These signals suggest that what feels like resilience may, in fact, be "hopeful delusion", making disciplined risk management more critical than ever.

K-Shaped Reality: Prosperity and Pressure in the Same Economy

This split isn't just a passing trend. It may reflect the deeper dynamics of a K-shaped economy, where uneven growth creates both opportunities and hidden risks for investors. When economic momentum hinges on a narrow base—primarily high-income households and leading-edge firms like those driving AI — growth becomes vulnerable if these groups pull back. For example, the Federal Reserve Bank of Atlanta estimates that the top 10% of U.S. households now account for nearly half of all consumer spending, buoyed by record stock market highs. That share is the highest level in data going back to 1989 and is well above the roughly 35% level of the early 1990s.

The divergence may lead to policy dilemmas. Central banks face conflicting signals — asset prices soar while wage growth for lower-income groups stagnates — complicating monetary policy and increasing systemic risk. And from a social perspective, persistent inequality can erode consumer confidence and political stability, which historically amplifies volatility in the capital markets. While a K-shaped economy doesn't guarantee a recession, history shows that extreme bifurcation often precedes market stress.

During the Dot-Com Era of the late 1990s, technology stocks soared while traditional sectors lagged, creating an unbalanced economy. When the extreme technology valuations collapsed, the broader market followed into a recession. More recently, during the post-COVID recovery, the technology sector thrived amid work-at-home measures, teleconferencing, and online schooling. Part of the healthcare sector that worked on vaccines and treatments saw a major boost, too. Meanwhile, service-based industries such as travel, restaurants and hospitality, took an outsized hit.

The Burrito Indicator

Chipotle Mexican Grill has become a real-time gauge of the economy's split personality, where a K-shaped recovery means some consumers keep spending while others pull back hard. Shares of the restaurant chain tumbled last week after the company warned that economic pressures are weighing heavily on customers, especially younger diners and those with lower incomes. CEO Scott Bowman noted that households earning less than $100,000 (about 40% of Chipotle's customer base) are dining out less, often due to concerns about inflation and broader economic uncertainty. The 25-35 age group is particularly challenged, facing unemployment, student loan repayments, and slower wage growth. Chipotle tends to over-index to this demographic, making the impact more pronounced.

Bowman stated that this trend is not unique to Chipotle and is occurring across all restaurants, as well as many discretionary categories. McDonald's CEO Chris Kempczinksi reported double-digit declines in traffic among low-income consumers, prompting the revival of "Extra Value Meal" combos to attract price-sensitive guests. Fast casual peers Cava and Sweetgreen are feeling the heat as well. Both are set to report third-quarter results later this week, but investor sentiment has already turned sharply negative. Cava shares have plunged about 50% this year, while Sweetgreen has lost 80% year-to-date.

At the opposite end of the spectrum, luxury goods giant LVMH Moet Hennessy Louis Vuitton delivered stronger than expected results last month, boosting its own share price along with those of its peers. Revenue posted a modest increase, a notable turnaround from the previous quarter's decline. Executives remain cautious, calling the fourth quarter the ultimate test of recovery. Early data suggests momentum continued in October, with Bank of America reporting an 8% year-over-year rise in luxury fashion credit card spending.

Today's market highs mask an increasingly uneven foundation. The K-shaped economy — where technology and luxury thrive while consumer staples and discretionary sectors falter — underscores the fragility of this rally. With spending concentrated among the wealthiest households and cracks appearing in lower-income demand, optimism alone cannot sustain growth indefinitely. This is doubly true if, as many commentors suggest, there is an AI-investment bubble that will soon break, possibly bringing the market's high-flying technology companies back to earth. History reminds us that imbalances often precede volatility, making diversification and disciplined risk management not just prudent, but essential as we navigate what could the long goodbye to investor confidence.

Looking Ahead

At this writing, the U.S. federal government shutdown has now lasted 35 days, tying the record for the longest in history and poised to break it. No deal has been reached yet, though Senate Majority Leader John Thune says he is "optimistic" about an off-ramp this week. The Senate is holding its 14^th vote on November 4 on a House-passed continuing resolution that would fund the government through November 21, but it has failed 13 times so far.

Measuring the economic toll of the shutdown is challenging, but several key effects stand out:

• Federal workers: At present, over 700,000 employees remain furloughed, with agencies issuing notices extending furloughs through late November. Retroactive pay remains uncertain.
• Food assistance: The USDA is using contingency funds to provide 50% of November SNAP benefits, following court orders. No funds remain for new applicants or disaster assistance.
• Travel disruption: Air traffic controller shortages are causing isolated delays, and officials warn cancellations could escalate if the shutdown continues.
• Economic data: Release of key reports (jobs, inflation) is delayed, complicating everything from Federal Reserve policy decisions to private market investment and business decisions.

Though the shutdown remains unresolved, ongoing negotiations and emerging bipartisan proposals suggest a path forward is possible. Progress may be slow, but signs of movement indicate that a deal could materialize before the economic and operational impacts deepen further.

Broad stock market momentum remains strong as companies continue to deliver impressive results, underscoring the resilience of corporate earnings. FactSet data shows with 64% of S&P 500 companies having reported third quarter earnings, the blended year-over-year growth rate stands at 10.7%. If this pace holds, it will mark the fourth consecutive quarter of double-digit earnings growth, matching the streak last seen in 2021. Looking ahead, analysts project a 14% increase for 2026, which would make it the third straight year of double-digit gains. For context, the last comparable run occurred during the 2003-2007 expansion.

Taken together, these trends point to a period of sustained earnings strength that reinforces confidence in corporate fundamentals. However, it's important to acknowledge the uneven nature of the current economic setting, with segments of the economy benefiting disproportionately, a hallmark of the K-shaped dynamic.

Additionally, ongoing uncertainty around the federal government shutdown poses potential headwinds for sentiment and operational stability. Even so, today's backdrop of solid demand, disciplined cost management, and constructive forecasts suggest companies remain well-positioned to navigate these challenges. If projections hold, the coming years could still mark one of the most robust earnings cycles in recent memory.

We appreciate your confidence and support and encourage you to reach out to an Old Point team member with any questions.

Market Commentary Disclosures

*Magnificent Seven: The term "Magnificent Seven" was coined by others and should not be construed as an endorsement or indicator of any stock or company's quality.

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Index Definitions

Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted average fo the 30 blue chip stocks that are generally the leaders in their industry. It has been widely followed indicator of the stock market since October 1, 1928.

NASDAQ Composite Index: The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Russell 2000 Index: The Russell 100 Index is comprised of the smallest 2,000 companies in the Russell 1000 Index, representing approximately 8% of the Russell 3000 total market capitalization. The real-time value is calculated with a base value of 135.00 as of December 31, 1986. The end-of-day value is calculated with a base value of 100.00 as of December 19,1978.

S&P 500 Index: The S&P 500 Index is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of the available market capitalization.

MSCI Emerging Markets Index: The MSCI EM (Emerging Markets) Index is a free-float weighted equity index that captures large and mid-cap representation across Emerging Markets (EM) countries. The index covers approximately 85% of the free float-adjusted market capitalization in the each country.

U.S. Aggregate: The Bloomberg USAgg Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (Agency fixed-rate pass-through), ABS and CMBS (agency and non-agency). (Future Ticker: I00001US)

MSCI ACWI Excluding United States Index: The MSCI AC World ex USA Index is a free-float weighted equity index. It was developed with a base value of 100 as of December 31, 1987