Good morning investors,
November's volatility continued last week, something we have constantly discussed, but last week ended with a whimper not a bang as major indexes finished nearly unchanged despite Thursday's tech tantrum. Warren Buffett deployed $4.9 billion into Alphabet per his latest 13F filing, while Oracle's roughly 30% slide this month shows the market differentiating between quality and overleveraging on debt. This week brings the moment of truth with Nvidia's report Wednesday and September's employment data finally emerging from the shutdown freeze. The momentum reversal since mid-September creates precisely the opportunity patient capital seeks before year-end strength materializes.
Opening Bell: The Oracle Speaks Through Berkshire
Futures show modest optimism with the S&P ($SPY ( ▲ 0.23% )) and Nasdaq ($QQQ ( ▼ 0.32% )) up fractionally while the Dow edges lower by 22 points. Alphabet ($GOOGL ( ▼ 2.43% )) rockets 4% premarket following Berkshire's Q3 stake disclosure, representing Buffett's most significant tech commitment in his final years. Simultaneously reducing Apple by 15% while initiating Google positions demonstrates surgical precision, not sector rotation.
Market Personality Shifts Dramatically
September marked an inflection point in market behavior and multiple things have changed since. The dollar's quiet turn on September 17 cascaded into systematic unwinding across cryptocurrencies, commodities, and growth equities over the coming months. Following momentum's 1,000 basis point outperformance versus quality since the Fed's September pivot, mean reversion arrived with characteristic violence.
Consider Palantir's post-earnings lethargy despite exceptional results. Historical precedent suggested 20% eruptions on such deliveries. Instead, algorithms trimmed positions while humans yawned. This price action disconnect typically precedes accumulation phases as weak hands exit before institutional deployment begins. Oracle's extreme leverage with debt-to-equity north of 500% represents another casualty of this quality reassessment, as the market no longer rewards balance sheet acrobatics when growth stories wobble.
Nvidia Transforms From Leader to Confirmation
Wednesday's Nvidia earnings remain significant but no longer directionally determinative. Cloud giants' capital allocation decisions telegraph demand months before semiconductor results confirm trends. Recovery above the $210-215 resistance zone would improve psychology, though the stock functions more as sentiment barometer than fundamental driver.
Jensen Huang's pre-scheduled equity sales generated predictable hand-wringing despite appearing formulaic. Markets consistently misinterpret executive transactions during fragile sentiment periods, creating noise without signal. The underlying demand narrative remains unchanged regardless of insider portfolio management.
Capital Migrates Rather Than Evacuates
Beneath headline weakness, intelligent reallocation continues. Healthcare, energy, and financial sectors demonstrate resilience while speculative segments of technology, quantum computing, and exotic materials surrender gains. International context matters - inflation registers 2% across Europe, 1.5% within India, and deflation grips China. Over 80% of global central banks' last policy move was a rate cut, historically predictive of forward equity strength.
Corporate America beyond tech titans delivered compelling results. The S&P's remaining 493 constituents beyond the Mag 7 generated 12% earnings expansion, marking several quarters' strongest performance. Since 2008, merely 16% of Nasdaq appreciation derived from multiple expansion - earnings and distributions drove the remainder. Current reporting validates this fundamental support.
Extremes Flash Opportunity Signals
Capitalization-weighted indices exceeded equal-weighted alternatives by 3.6% across four sessions; precedent exists only during 2008 and 2020 crises. However, current conditions differ fundamentally as mega-cap valuations already stretched before divergence, suggesting concentrated pressure while broader markets stabilize. Such patterns typically conclude positioning adjustments rather than initiate bear markets.
Fixed income volatility evaporated with Treasury yields confined to 95 basis point ranges versus 2022's 300 point swings. Stability enhances planning visibility, reduces financing costs, and supports risk assumption. Markets feel unsettled yet structurally sound, and interest rate surprises disappeared.
Consumer Truth Arrives This Week
Retail earnings provide critical intelligence with Walmart's Thursday report bookended by Home Depot Tuesday and Target Wednesday. Following mixed discretionary signals, these anchors reveal actual spending dynamics. Walmart's continued strength would confirm consumer resilience despite documented K-shaped divergence.
Thursday's employment report release, delayed since October 3, offers first official labor market assessment in months. Administrative warnings suggest data incompleteness, yet any authoritative update improves visibility. Private indicators show deceleration without collapse, which is precisely the environment maintaining Fed hesitation without forcing action.
Final Thought
November's turbulence represents textbook pre-rally consolidation, where excessive leverage is purged, crowded trades unwound, and speculation disciplined. Buffett's Alphabet investment while reducing Apple exemplifies quality discrimination emerging at current valuations. The systematic momentum reversal initiated by September's currency inflection generates entry points for strategic allocators.
Market personality changes manifested through Palantir's earnings indifference and cryptocurrency's correction, but these are healthy adjustments preventing bubble formation. Simultaneously, non-tech earnings strength, global monetary accommodation, and volatility compression support constructive outlooks following repositioning completion.
Historical precedent remains compelling. Post-midterm positioning through subsequent June delivered positive returns across 21 consecutive cycles since WWII, with two-thirds exceeding 10%. This gives 2026 tail end strength that could follow a continuing AI bull market.
Nvidia's Wednesday announcement may catalyze sentiment but won't alter fundamentals. Capital expenditure cycles continue transforming future investment into present earnings, as AI spending generates rather than destroys value. Legacy valuation models consistently misunderstand this dynamic.
My conviction strengthens for year-end advances toward S&P 7,000 as technical pressure dissipates and participation broadens. November's volatility offers accumulation windows in quality franchises. Current disruption represents preparation, not conclusion.
As always, feel free to reach out with questions about navigating these crosscurrents.
Best regards,
Dan Sheehan
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.