From the Market Desk: Bring ’em in

Macro

• The Atlanta Federal Reserve (Fed) GDPNow third-quarter GDP growth estimate was 4.0%, which would represent a continued acceleration from the first and second quarters. This data is noisy, but it certainly doesn't suggest any threat of recession. (Source: Atlanta Federal Reserve Bank. GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter.)
• The Fed delivered the October interest-rate cut we expected, and, as of November 7, the odds for a December rate cut stand at 72% (based on fed fund futures). This number is up from the previous week and rose primarily due to weak Challenger Report jobs data.¹ Two-year Treasury note yields at the end of the week were near 3.53% 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 of another rate cut in December, but it is far less certain today compared to the last few weeks. 
• The one-year breakeven inflation rate was 2.63%, down 11 bps on the week; the two-year breakeven rate was 2.51%, down seven basis points (bps) on the week; the five-year breakeven inflation rate was 2.35%, down four bps on the week; and the 10-year breakeven rate was 2.63%, down seven bps on the week. It's interesting to me that both the one- and the two-year breakeven rates are closing in on the lowest levels of the year. 
• The US Dollar Index (DXY) traded near 99, essentially unchanged for the last six months—the index has established a well-defined range of 96 to 100. 

Equities

• The stock market has stayed resilient with sporadic pullbacks and shots of volatility. We expect this choppiness to continue into year-end. The real story remains the same: The economy has been resilient, the consumer has been resilient, and the Fed has cut rates in an economic expansion. We reiterate the year-end S&P 500 Index target range of 6,400 to 6,800 from our Global Investment Management Survey.
• Last week, I pointed out that the relative strength index (RSI) for the S&P 500 had reached 70. That suggested to us that the tape was "overbought" and should pullback—which has happened. 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, with a 100% hit rate.
• 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 think dollar-cost averaging on additional weakness and spreading one’s bets out makes sense.
• Use spot volatility to your advantage. VIX readings over 30 get me interested, and readings over 50 make me aggressive. We’re not close to either level yet, with the VIX trading near 22 on November 7.
• Earnings season is essentially over at this point with 90% of the S&P 500 companies reporting so far. As of this writing, 67% of companies have beaten expectations on revenue, and 82% have beaten on earnings (source: JP Morgan). The earnings beats are ahead of what we normally see, which is about 75% to 80% of firms beating estimates. In this strong earnings season, six out of 11 sectors have posted double-digit earnings-per-share growth, led by the technology and financials sectors. All eyes will be on NVIDIA when it reports on November 19.
• On a 12-month trailing basis, the S&P 500 is trading at 26 times (x) reported earnings. For context, the 10-year median trailing multiple is 20x. So, the market 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 the 6,650 level, and the earnings estimate for calendar year 2026 at $304.48 (up 12% year-on-year), the tape is trading at 21.76x next year’s earnings. When you remove the Magnificent Seven stocks, that number is about 20x. Since 1990, the median forward multiple is about 19x. The tape is not cheap here, but we have just come in one turn. 
• We know from history that when the Fed cut interest rates after a pause, returns a year later were 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 drive stock prices, and the forward earnings picture is positive around the world. Now is the time to maintain diverse equity exposure across size, style and geography. Don't chase, buy weakness; be ready during downside volatility.

Fixed Income

• US 10-year Treasury rates were 4.06% at the end of the week, at the low end of the 4% to 4.5% range expected for this year, according to our Global Investment Management Survey. 
• Investment-grade bond spreads look well behaved at 52 bps over Treasuries, up four bps on the week. High-yield spreads also remain well behaved at 278 bps over Treasuries, up 16 bps on the week. Neither spread is suggesting a widespread credit problem.
• We reiterate our bullish stance on municipal bonds. The supply issue that impacted this market earlier in the year seems to be behind us, and performance has been improving quickly. We find valuations attractive at this level, at this time. 
• History tells us that when the Fed cuts rates after a pause, forward returns for US Treasuries over the next year were positive, averaging 6%.² Similarly, corporate IG bonds have historically generated average 8% returns one year after the Fed’s resumption of rate cuts after a pause.³

Sentiment

• The “wall of worry” remains firmly in place, according to the data from the AAII Sentiment Survey of individual investors.
• The percentage of bulls in the survey last week was 38%, down six ticks. The percentage of bearish investors last week was 36%, down one tick. That means 62% of "sophisticated" investors were either neutral or bearish. We are on alert for extreme readings here and will advise if and when that happens. 
• There is always a lot to worry about. Separate the signal from the noise. More than any other factor, earnings drive stock prices, period.

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 7, 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.