U.S. equities advanced in October, with the S&P 500 Index rising 2.3%, extending its year-to-date gain to 17.5%. Large Cap Growth stocks outperformed, gaining 3.6%, while Large Cap Value added just 0.4%. Major U.S. indices, including the S&P 500, Dow Jones, Nasdaq 100, and Russell 2000, all marked their sixth consecutive month of gains, with several setting new record highs.
Market Commentary 12/10/25
Markets Digest Interest Rates & the Next Phase of the AI Cycle
The S&P 500 Index advanced 0.2% in November, its seventh consecutive monthly gain. Large Cap Growth declined 1.8% as AI-related names came under pressure, while Large Cap Value rose 2.7%. The Russell 2000 and the Dow Jones Index both outperformed the S&P 500 as mega-cap tech stocks weighed down the index.
Health Care led all S&P 500 sectors with a 9.3% return. Eight of the eleven S&P 500 sectors outperformed the index, while the Technology, Consumer Discretionary, and Industrials sectors each traded lower.
Bonds likewise provided positive returns for the month as Treasury yields ended the month lower despite some volatility tied to uncertainty around a rate cut this month. The U.S. Bond Aggregate gained 0.6%, increasing its year-to-date return to 7.5%. Investment-grade bonds matched the Aggregate’s 0.6% total return, edging out high-yield’s 0.5% gain.
International stocks were mixed. Developed Markets gained 0.6%, modestly outperforming the S&P 500, while Emerging Markets fell 2.4%.
The Market’s Back-and-Forth with the Federal Reserve
The stock market was volatile in November as the Federal Reserve managed investor expectations for a December rate cut. The volatility started after the Fed’s late-October meeting, when Chair Powell said a December rate cut was “not a foregone conclusion.” Market-implied odds for a third consecutive rate cut fell from 98% in late October to approximately 40% in mid-November, as multiple Fed officials questioned the need for another rate cut.
The uncertainty weighed on the stock market, with the S&P 500 trading lower and eventually bottoming on November 20th. Sentiment then shifted again late in the month as comments from influential Fed members, rising unemployment, and favorable inflation data pushed the odds of a December cut back above 80%.
The market’s reaction wasn’t just about a 0.25% rate cut, but rather what the Fed’s decision signaled about the future. We believe the December cut would affirm the bullish narrative that the Fed was pulling off a “soft landing,” whereby the central bank proactively lowers interest rates to reduce the risk of recession.
When the odds of a December cut initially fell, the market sold off as investors reassessed that optimistic outlook. Leaving rates unchanged could keep financial conditions tighter for longer, potentially slowing down the economy and earnings growth. The late-month rebound, fueled by rising expectations of a December cut, reflected increased clarity and confidence about the path ahead.
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S&P 500 Index is a capitalization-weighted index calculated on a total return basis with dividends reinvested. The index includes 500 widely held U.S. market industrial, utility, transportation and financial companies.
Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.
Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. PM-06082027-8653797.1.1
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