Good morning investors,
November has delivered exactly the kind of uneven price action I expected. The month has been choppy, and historically the S&P 500 tends to bottom between the 18th and 20th before end-of-month seasonality takes hold. This year mirrored that pattern almost perfectly. While turbulence isn't completely behind us, I expect a constructive move into Thanksgiving as Monday's 2.7% Nasdaq surge demonstrates. Google hitting new highs on Gemini 3 excitement while Meta considers billions in Google's TPU chips shows AI competition driving innovation, not bubble dynamics.
Opening Bell: Tech Rotation Underway
Futures slip modestly with the Dow ($DIA ( ▲ 1.36% )) down 27 points, S&P ($SPY ( ▲ 0.23% )) futures off 0.1%, and Nasdaq ($QQQ ( ▼ 0.32% )) futures down 0.2%. Nvidia ($NVDA ( ▼ 1.55% )) falls 3% premarket on reports Meta ($META ( ▲ 0.4% )) may spend billions on Google's ($GOOGL ( ▼ 2.43% )) TPUs starting 2027, while Alphabet gains 3% as validation of its chip strategy. This rotation within AI leaders suggests healthy competition rather than sector weakness.
Best Buy ($BBY ( ▲ 1.15% )) beat expectations and raised full-year guidance with adjusted EPS of $1.40 versus $1.31 expected on $9.67 billion revenue. The retailer sees comparable sales rising 0.5-1.2% versus prior expectations of -1% to +1%, proving consumer tech demand remains solid despite macro concerns.
Why Last Week Marked the Bottom
Several technical indicators confirm last Thursday's capitulation. Inverse ETF volume hit 43% of total S&P trading, the highest in two years excluding Liberation Day. Historically, 40% signals correction bottoms in this cycle. Seeing it exceeded so forcefully confirms exhaustive selling.
The sequence matters: strong jobs data, no economic releases, hawkish Fed commentary, and crowded positioning triggered forced liquidation. By late Thursday, sentiment collapsed after shedding a trillion in market cap. Friday's NY Fed reassurance reversed psychology equally sharply. Combined with November seasonality, last week looks like the low with high probability.
My Four Bold Calls Gaining Traction
My weekend predictions for year-end already show promise:
Bitcoin back to $100K - Bouncing from $80K support as liquidity returns
Russell 2000 new highs - Small caps coiled for rotation as Fed pivot approaches
December Fed cut - Now 80%+ probability after Williams and Daly comments
S&P 500 reclaiming 6,800 - Base case with upside to 7,000 if data cooperates
My year-end 2026 target remains 7,500 as AI productivity gains materialize.
Google's Gemini Changes Everything
Alphabet's 6.3% Monday surge to record highs validates its AI strategy. Gemini 3's capabilities impressed even skeptics, with tech cognoscenti declaring "Google is back." The launch signals clear competitiveness with leading models while leveraging unmatched distribution - 2.5 billion daily Search users versus 500 million global chatbot users.
Meta considering Google's TPUs represents validation, not threat. It shows companies seeking chip diversity beyond Nvidia while confirming Google's technical prowess. Alphabet remains my top conviction holding with the clearest long-duration AI monetization runway. Valuation questions will start to arise as the historical multiple on the name is around 23x, but with Google's full stack AI positioning, the ability to shift users from search to AI, high quality chips, and the lead in quantum computing, I see good things ahead.
Fed Pivot Gaining Momentum
San Francisco Fed President Mary Daly joined NY Fed's Williams supporting December cuts, citing "vulnerable" labor markets. Though non-voting, Daly rarely breaks from Powell publicly. With the Chair silent until December 10, proxies fill the void with dovish signals.
December cut odds surged from under 40% to over 80% in days. Markets force the Fed's hand historically, and they're doing it again. Balance sheet support becomes increasingly likely in 2026, even avoiding the QE label, to support capex, AI infrastructure, and Treasury financing.
AI Monetization Arrives in 2026
We're moving from experimentation to implementation. Companies will be judged on demonstrated ROI, margin expansion, efficiency gains, recurring revenue. Winners convert capability into measurable results. New markets emerge in healthcare, education, manufacturing, and real-economy services. Productivity gains turn visible.
This shift favors Alphabet's integrated ecosystem, Microsoft's enterprise dominance, and selective plays showing real returns. Oracle's leverage problems don't negate sector opportunity, they highlight quality discrimination necessity.
Behavioral Structure Permanently Changed
A generation raised on 401(k) flows, algorithmic trading, and crypto's 50% drawdowns views financial crises as normal volatility. They've experienced mini-crashes every year or two in the crypto markets and emerged conditioned to buy dips aggressively.
Result: sharper drawdowns but faster recoveries. April's selloff illustrated it, last week repeated it. Investors expect multi-year bears that history doesn't support. Post-2008 behavioral shifts altered market structure in ways many underestimate.
Sector Rotation Supporting Breadth
Healthcare remains my highest conviction overweight into 2026. The sector combines defensive cash flows, attractive valuations, demographic demand, and compelling AI use cases. It provides both protection and optionality when investors need both.
Rate-sensitive sectors should accelerate once Fed signals clearer easing intent. Small caps, housing, and selective tech offer asymmetric upside. The rotation from crowded momentum into quality value already began - it accelerates from here.
Final Thought
November delivered the chop I predicted, bottoming precisely on schedule. Last week's capitulation, inverse ETF volume hitting two-year highs, trillion-dollar market cap swings, sentiment exhaustion, marks textbook correction completion. Friday's reversal on one Fed comment shows how quickly psychology shifts when selling exhausts.
Fresh inflation data arrives shortly, mattering for December's Fed meeting. The data drought created real difficulty for policymakers. When September jobs printed strong and officials leaned hawkish, markets snapped. But that was the capitulation event. Now sentiment has flipped, cut odds surge, and roughly one trillion in market cap recovered from lows.
The broader earnings landscape supports early-cycle dynamics rather than late-cycle concerns. Revisions turn higher, operating leverage improves, participation broadens. These classic early-cycle markers reinforce my 2025-2026 targets.
Liquidity remains the key tactical variable. Recent corrections were liquidity driven, not fundamental. Bitcoin's 30% drawdown signals liquidity stress, not structural breakdown. Markets have a long history of forcing the Fed's hand, they're doing it again.
The final six weeks bring more volatility but also constructive seasonal push into Thanksgiving and strong year-end finish if data remains stable. December Fed cut strengthens 2026 setup considerably.
My roadmap remains unchanged: S&P 6,800 into year-end with upside toward 7,000, then 7,500 by end-2026. Markets behave as though a new cycle has begun. In many respects, it already has.
As always, feel free to reach out with questions about positioning for year-end strength.
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.