This week’s 7 Market Movers brings long-delayed economic data and a meaningful shift in market tone as we head toward year-end. Gary Quinzel walks through how markets initially rallied after the rate cut (but that enthusiasm quickly faded), why concerns over growth and AI valuations weighed on stocks, and what sparked Thursday’s rebound.

With equities, bonds, and even commodities showing strong gains in 2025, Gary also highlights the 3 big themes investors will be watching as we enter 2026. 

Watch the full video here:

TRANSCRIPT:

Hello, everyone. Welcome back to 7 Market Movers. My name is Gary Quinzel with Wealth Enhancement. It's been another busy week for markets.

Following up on last week's rate cut by the Fed, this week we saw some delayed economic data finally coming through, and today we saw a rebound in stocks driven by a surprisingly soft inflation print. Let's walk through what's moving markets as we head into year end. So as mentioned, last week we saw the Fed cut interest rates for the third time this year. The initial reaction by the stock market was positive, but that enthusiasm faded pretty quickly.

Stocks drifted lower into early this week as investors reassessed growth, valuations, and of course concerns surrounding a possible bubble in AI stocks, something we've talked about quite a bit.

On Tuesday, we finally received the November payrolls report, which had been delayed because of the government shutdown.

According to the BLS, the economy added sixty four thousand jobs in November. The unemployment rate rose to around 4.6, which is the highest number in nearly four years. This happened while the labor force participation rate held steady at 62.7. We saw job gains concentrated in healthcare and government, while manufacturing, retail, and transportation showed little change.

We also saw that average hourly earnings rose 0.2% in November and are up around 3.4% year over year. But more notably, we saw that job losses in October amounted to around 105,000, which were mostly driven by a drop in federal workers. I think that might have been what contributed to some of the earlier weakness we saw in the market earlier this week around some concerns about a slowing economy.

We saw four straight down days for the S&P 500. Markets then staged a comeback on Thursday, which was driven by that meaningful cooling and inflation. So according to the BLS CPI data, headline CPI rose just zero point one percent November and is up 2.7% over the past year. Now if we look at core CPI, which pulls out food and energy, that also rose 0.1% in November and is up just 2.6% year over year, which is the lowest core inflation reading since early 2021.

This helped spark a little bit of a reality across equities and bonds, as we saw yields come down in line with anticipation for rate cuts. As we noted, today's CPI somewhat armed the Fed doves with stronger ammunition for easier monetary policy. The S&P 500 did jump around 0.8%, ending its four day slide, and the Nasdaq did even better, rising around 1.5%, which was helped by strong guidance from Micron, which Bloomberg noted helped underscore the ongoing appetite for AI related infrastructure, which we don't see slowing down anytime soon.

Treasury yields continue to move lower as investors build expectations with an easier policy next year. If you take a look at the Fed futures right now, traders are pricing in around two rate cuts in 2026, even with some of the skepticism around the November CPI data because of the fact that the economic data is somewhat distorted because of the shutdown and the limited sampling period.

Shifting gears now to valuations, which remains a major theme as we close out the year.

Something we talk a lot about, price to earnings ratio, very, very poor indicator of short term market movements, but it does tell a meaningful story around how richly equities or risky assets are valued relative to other asset classes. The S&P 500 forward price earnings ratios, it's around 22 right now, which is close to its peak back in 2022, but it's well above its long term average of around 16 times earnings. If we look at the same ratio for the Magnificent Seven stocks, they're trading around 28 times earnings, which is down from its high back in 2020 of around38, but still very rich by historical standards. So we have higher valuations, but if we look at the peg ratio, which is the price to earnings to growth ratio, this does tell a more balanced story.

If we use 5-year forward consensus growth estimates, the peg ratio is roughly 1.2 times, which is about in line with its 30-year average. So in other words, while absolute valuations continue to look elevated, they're more aligned with long term norms once expected earnings growth, especially tied to AI and productivity gains, is factored in. So the takeaway here is that valuations remain rich and leadership is narrow, and a lot is riding on those AI winners continuing to justify their premium pricing.

All in all, 2025 has been a remarkable year. We've seen a year of strong market gains really across the board, everything from US equities to international equities, which have done even better, to certain commodities, and even bonds overall have had, positive years. So pretty much across the board, if you were invested, whether concentrated or diversified, you probably saw some notable gains.

We saw big shifts in monetary policy. We saw major steps forward in artificial intelligence, but we know it has not always been smooth, and markets proved resilient even in the face of shutdowns, missing data, and questions about ongoing growth.

As we move into 2026, investors will be watching three big themes: the path of Fed policy, the durability of the consumer, and whether AI leaders can continue to deliver on the promise of higher productivity. We'll be here each week helping you make sense of it and to remind you of the importance, of diversification, a proper asset allocation, and working with your financial advisor to help construct a sensible financial plan. So from everyone here at Wealth Enhancement, we wish you all a very happy holiday season and good health and prosperity in the New Year. Thanks for watching and see you on the next 7 Market Movers.

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances. Investing involves risk, including possible loss of principal.

There is no guarantee that asset allocation or diversification will enhance overall returns, outperform a non-diversified portfolio, nor ensure a profit or protect against a loss.

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