A "make or break" week ahead ?

November 17th, 2025

Thoughts of the week

Investors have started questioning, and rightly so, the economics of the relentless spending on AI (infrastructure and software) and for the older generation, memories of the 1999 bubble have inevitably resurfaced. The ultra-bulls will say that we are more closer to 1996 when the bubble had just started forming and the internet started presenting itself to the mass populations. Hence, they claim, we still got a few years of a strong rally ahead. The problem with this rationale is that first, markets are moving now at ultra-sonic speeds while 30 years ago they were just walking. Secondly, a 1999-type bubble might not form this time because we have the memory of the previous one, a valuable experience which we did not have back in the day, when the internet was a indeed a miracle in front of our eyes. Investors will probably start selling into expensive (but not bubbly yet) valuations before the ultra-bubble forms, which is, of course, a good scenario, as a consolidation of the mega caps for a few quarters is desperately needed.

Another negative catalyst for US markets was that the "December rate cut" theme has started waning. A major catalyst for the rally since mid-summer has been the belief that the FED is going to cut interest rates aggressively into year-end. And indeed they have already cut twice for a total of 50bp. But the recent FED meeting had already poured some cold water as it painted a very divided committee, which means that the next cut rate in just one month from now is by far a done deal, as the market was expecting up to recently. Then last week various FED officials who sit on the voting committee expressed doubts about a new rate cut. San Francisco Fed’s Daily said that it is preferrable to wait for more information before they move again and St. Louis’ Mussallem said that he sees limited room to ease because policy will become very accommodative. Kansas City Fed President Schmid said that inflation is his main concern and a rate cut could have a negative impact. As a reminder he was the only one to vote for no-change in the previous meeting too. The December cut is now priced with a probability of a toss-of-a-coin (50%), much less than the 75% two months ago.

In the current nervous environment, Nvidia's results on Wednesday night will be crucial for the direction of the markets. The fact that investors and traders are going into the results already with cracked sentiment could prove beneficial as an explosive relief rally could take place. On the contrary, any slight disappointment on guidance or metrics could provide the excuse to those wishing to crystalize their year-to-date profits ahead of the fiscal year-ending in November to do so. Interestingly, during the recent Tech mini sell-off the rest of the market showed signs of life and the Dow Jones index even registered a new record high. This is a very healthy development and proof that well diversified portfolios are definitely more boring and nothing to brag about at cocktail parties, but make you sleep better at night.

What caught our attention

The US government has finally re-opened after the longest shutdown in history. For the record the second longest period was in 2019, during Trump's first presidential term, which means he has become an expert in shutting down the government. The re-opening will hopefully bring back the valuable macro-economic data we have been missing, such as the October inflation numbers as well as the September labor market statistics, even if the latter would be already outdated. also. In the meantime, the private payrolls numbers published by ADP showed a decline of 12.5k for last week.  This new weekly data series is however volatile, so we are not yet sure how helpful these are in extracting conclusions. Overall, it seems that the US labor market is indeed showing signs of weakness, part of which is due to operational efficiencies created by artificial intelligence.

In Germany, Chancellor Merz is under increased pressure and criticism. More and more voices are being heard saying that the significant, once-in-a-lifetime decision, to increase the country's debt in order to boost investment in defense and infrastructure has been misallocated so far. Various business associations and institutions have already expressed their concern, among which, the all-mighty Bundesbank. Then last Wednesday, Germany's Council of Economic Experts lowered their expected 2026 GDP forecast to only 0.9%, which compares to the government's own forecast of 1.3%. Their statement was blunt and clear :"the currently planned expenditure from the Special Fund for Infrastructure and Climate Neutrality will have only a small positive impact, because up to now it is mainly used for budget reallocations to finance consumptive expenditure". (...ouch)

Market reaction

US Technology was, hence, weak for a second week in a row, although Friday's reversal was a positive sign. Nasdaq is now 5% down in November, while the S&P500 corrected by 2.5% in these first two weeks of the month. The small cap index, Russell 2000 is down almost 6% in the same period. And this was supposed to be the best month of the year based on historical data. Then again as we pointed out in our weekly newsletter at the start of the month, nothing has worked according to historical patterns this year. But before we jump to conclusions and hit the trading buttons, there are still about ten trading days to go, where everything can change (or not).

European equities, on the contrary, posted a solid week. The broad indices advanced by more than 1.5% while the Swiss market (+2.8%) was the outperformer, boosted by the news of the US-Swiss trade deal which brings the tariffs down from 39% to the EU level of 15%. During the week we witnessed yet another rotation away from previous winners (defense, electrification) and into consumer-related names (luxury, auto and even food & beverage). The positive results of Cartier-owner Richemont helped the sentiment further.

The bond market was weak, as traders and investors were reconsidering their rate cut expectations. The US 10yr yield rose to 4.15% and the German equivalent rose close to 2.75% again. The recent turmoil in private credit and the sell-off in bonds of small US AI-related profitless companies spilled moderately in to the high yield bond market, where spreads have crept higher by about 30bp since the start of the month. Both government bonds and corporate spreads, primarily in the US, remain low and hence positions in US corporate and high yield bonds are exposed to marked-to-market risk. Absolute yields at a hold-to-maturity level for the 3-5 years maturity seem to be ok.

Chart of the week

Stock concentration in the S&P500 rises to new, unsustainable highs.

The above chart shows the total weight of the top-5 stocks of the S&P500 since the early 1970s. Currently, the top-5 stocks in the S&P500 (Apple, Nvidia, Amazon, Microsoft and Broadcom) comprise about 28% of the index. This is a new record high and the performance of these 5 stocks on a daily basis has a significant impact on the index. If someone adds the top-10 stocks, then this percentage moves up closer to 33%, or one third of the index. Such a concentration is clearly not sustainable and has often coincided with weakness/underperformance for the index for the months or even years that follow. In the 1970 it was companies such as Kodak, GM, IBM and AT&T that had little lower than 25% of the index, and we can all see that the top-5 stocks reached a low 10% a decade later, which means that these five stocks significantly underperformed (some ceased to even exist). During the internet bubble the top5 concentration reached 17% and then the crash happened, while during the pandemic bubble the concentration reached almost 25% and then the mini crash of 2022 took place. We are now north of 28%, and if history is any guide, these stocks should not perform equally well on a 12-month horizon, unless things have changed so much, that the S&P500 will turn into a S&P10 index and life will continue seamless.

Disclaimer

• The content of this document has been produced from publicly available information as well as from internal research and rigorous efforts have been made to verify the accuracy and reasonableness of the hypotheses used. Although unlikely, omissions or errors might however happen.

• The data included in this document are based on past performances and do not constitute an indicator or a guarantee of future performances. Performances are not constant over time and can be positive or negative.

• This document is intended for informational purposes only and should not be construed as an offer or solicitation for the purchase or sale of any financial instrument and it should not be considered as investment advice. The market valuations, views, and calculations contained herein are estimates only and are subject to change without notice. Any investment decision needs to be discussed with your advisor and cannot be based only on this document.

• This document is strictly confidential and should not be distributed further without the explicit consent of Kendra Securities House SA.

• Sources: Chart of the Week : Les Cahiers Verts