From the Market Desk: Volatility creates opportunity

Macro

• The Atlanta Fed GDP now is forecasting 4% GDP growth in the third quarter, a continued acceleration from the first and second quarters. This data is noisy, but it certainly doesn't suggest any threat of recession.
• The Fed cut rates as expected last month, and as of November 14, the odds for a December rate cut were 53%, according to fed funds futures. This was down from the previous week amid more recent comments from a few Fed governors suggesting a split among Fed voters. The two-year note yield was 3.56% and still below the fed funds effective rate of 3.87%. So, two-year note yields are still telling us there is a good chance the Fed will cut again in December, but it is far less certain today relative to the last few weeks.
• The one-year breakeven inflation rate Friday was 2.67%, up four basis points (bps) on the week, the two-year breakeven rate was 2.55%, up four bps on the week, the five-year breakeven inflation rate was 2.39%, up four bps on the week, and the 10-year breakeven rate was 2.30%, up three bps on the week. It's interesting to me that both the one-year breakeven and the two-year breakeven are closing in on the lowest levels of the year.
• The US Dollar Index (DXY) stands at 99; meaning the US dollar has essentially been unchanged for the past six months. The DXY has established a well-defined range of 96-100.

Equities

• The stock market remains resilient, with sporadic pullbacks and shots of volatility. We expect this chop to continue into year-end. The real story to me remains the same; the economy is resilient, and the consumer is resilient, with the Fed cutting rates in an economic expansion. I reiterate our year-end S&P 500 Index target range of 6400–6800 from our Global Investment Management Survey.
• Two weeks ago, I pointed out that the relative strength index (RSI) for the S&P 500 had reached 70. That suggested the tape was "overbought" and should pull back. That is now happening. There have been five readings of 70 or more since May. In every case, those overbought readings preceded a consolidation, with the S&P 500 pulling back 3.37% at the median and a 100% hit rate. I think we need this market pullback to take the froth out. 
• I will be watching for oversold readings going forward, which would be an RSI of 30 or less. We are not there yet. Make your list. I still see dollar-cost averaging on additional weakness as a viable strategy—and spreading one’s bets out seems prudent. 
• Investors can use spot volatility to their advantage. From an investment standpoint, VIX readings over 30 would make me interested and readings over 50, aggressive. As of this writing, the VIX is trading at 23—still a ways off.
• Of note, Bitcoin was off about 24% from its recent high. Its RSI was at 32.
• NVIDIA’s earnings report on November 19 will be a market focal point this week. The reaction to the report/guidance is likely to be more important than the quarterly print itself.
• On a 12-month trailing basis, the S&P 500 is trading at 26x reported earnings. For context, the 10-year median trailing multiple is 20x. So, it is trading rich relative to the last 10 years. The market looks forward, not backward, and is clearly expecting continued earnings growth in 2026. With the S&P 500 trading at 6700, and the earnings estimate for calendar year 2026 at $304.48 (up 12% Y/Y), the tape is trading at 21.99x next year's earnings and, ex the Mag Seven, that number is about 20x. Since 1990, the median forward multiple has been about 19x. The tape is not cheap, but it’s not crazy, either.
• We know from history that when the Fed has cut interest rates after a pause, returns one-year out have been positive. See our recent research paper, ”How US equities and US fixed income performed with a resumption of Fed easing,” for additional data.
• All in, earnings are a key driver of stock prices, and the forward earnings picture so far looks positive around the world. We think it makes sense to diversify equity exposure across size, style and geography, and we maintain the view of don't chase, buy weakness.

Fixed income

• The US 10-year Treasury stands at 4.11% and is at the low end of our 4% to 4.5% forecasted range for the year. We like the idea of extending duration on any significant back-up in yields.
• Investment-grade (IG) spreads remain well-behaved at 52 bps over Treasuries, unchanged on the week. High yield spreads also remained well-behaved at 283 bps over, up five bps on the week. Neither suggests a widespread credit problem, in my view.
• Our stance on municipal bonds remains bullish. The supply issue that impacted this market seems to be behind us, and performance seems to be improving quickly. We think it looks like a good time to consider buying.
• History tells us that when the Fed has cut interest rates after a pause, forward returns for US Treasuries have been positive 6% on average.¹ Similarly, corporate IG has historically generated a positive 8% return on average when the Fed has cut after a pause.²

Sentiment

• The “wall of worry” remains firmly in place, according to the data from the AAII investment survey.
• The percentage of bulls this week is 32%, down six ticks from the prior period. I’m watching this closely; readings below 25% equal fear and readings below 20% have been generally consistent with market bottoms. The percentage of bears this week stands at 49%, up 14 ticks on the week. That means 68% of "sophisticated" investors are either neutral or bearish. We are on alert for extreme readings here and will advise if/when that happens.
• There is always a lot to worry about. The key is to separate the signal from the noise. And remember, earnings drive stock prices.
• We’ll continue to study the markets and will share new insights next week.

Source of data (except where noted) is Bloomberg as of November 14, 2025. There is no assurance that any forecast, projection or estimate will be realized. An investor cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. Important data provider notices and terms available at www.franklintempletondatasources.com.