Staying Steady Through the Storm
Commentary:
In last month’s newsletter “Earnings Shine as Government Shutdown Clouds the Dashboard” we discussed the possibility of increased volatility on the horizon. The record-long government shutdown had created uncertainty in the market, making it difficult to get a clear read on economic data. While our view was to remain positive about the longer-term outlook of the markets, we decided to take some risk off the table. We had shifted 2% of our stock exposure and used some excess cash to initiate a 3% position in the US Dollar, an investment that typically holds up when markets get choppy.
As it turned out, November delivered the volatility we were anticipating. After the government reopened, markets experienced a notable pullback. The S&P 500 fell 5.11% from its peak, while the Nasdaq dropped 7.34%. [2] Then came Thanksgiving week, on low trading volume, markets made a sharp turnaround with the S&P 500 and Nasdaq jumping 3.46% and 4.71%, respectively, erasing most of the month’s losses.
By the end of November, the damage was minimal, but the ride was bumpy. This is exactly the kind of environment where being positioned defensively pays off. The recovery was impressive, but came on light trading volume, a reminder that holiday-week rallies can sometimes be less reliable than moves that happen when all investors are actively participating.
The economic picture remains mixed but generally constructive. Corporate earnings for Q3 came in strong, with most S&P 500 companies beating expectations. Further tax cuts and government spending can provide a tailwind for the markets ahead. For now, the Federal Reserve remains the biggest question mark. After cutting rates twice earlier in the fall, Fed officials are now divided about what to do next. According to PolyMarket, the odds of a December rate cut began the month at 67%, fell to 22% mid-month, and finished the month at an 89% probability. [1] While rate cuts tend to support stock valuations, the fed continues to walk on a tight rope. Cut too much, and inflation could heat back up. Cut too little, and the economy could slow down more than necessary. This makes the December decision particularly interesting.
Conclusion:
Despite the recovery in the late month, our near-term view remains cautiously bullish. In plain English, we believe there are enough monetary and fiscal tailwinds to push equities higher over the next 6-12 months, particularly heading into 2026. However, in the near-term we are being selective and defensive. To put November's move in perspective, the S&P 500 remains up ~37% from its April lows, an incredible run. Our tactical shift away from stocks and into the dollar was relatively small (just 2%) and served a specific purpose: locking in some profits after our aggressive move to overweight equities in late July. We are not trying to perfectly time the market; rather, we are simply trying to manage risk intelligently.
That said, we continue to favor technology and small caps as we look ahead to 2026. These sectors offer the most compelling risk-reward in our view, which is why we marginally added to our QQQ (Tech) and IWM (Small Caps) positions earlier in the month. We see these areas as best positioned to benefit from the Fed's eventual policy pivot and potential fiscal stimulus, while also offering the innovation and growth characteristics we want to capture in a recovering economic environment.
While the long-term outlook remains positive, we're maintaining our slightly more defensive posture for now. The current economic environment provides opportunities to generate positive returns while keeping overall volatility low during this "foggy time" as the Fed figures out its next moves. Our approach is deliberate: reduce excess risk where appropriate but stay positioned in the sectors we believe will lead the market higher.
Sources
1. Fed decision in December? Odds & Predictions (2025) | Polymarket
Model Performance Update
Our Moderate Model Portfolio returned 1.63% in November and has returned 14.53% YTD
Changes to the model portfolio in November
11/7/2025
- Removed EWA (Australia) from Satellite 1
- Added to QQQ (Tech) and IWM (Small Caps) in Satellite 1
November Performance with Benchmark
YTD Performance with Benchmark
If you were to have any questions regarding the above please reach out to us to set up a one to one meeting to review your situation.
Sincerely,
Bryant Andrus, MSF, CFP®
President
SBC Investment Management
P: (602) 641-5996
M: (319) 520-2033
E: bandrus@sbcinvestmentmanagement.com
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