Stocks Climb as Buyers Step In Despite Nvidia Woes

Market Performance and Election Impact

• The S&P 500 declined 5.5% from its October 6th high, surpassing the analysts' previously cited 5%–10% "garden variety" pullback target range ($7,000–$7,400).
• Historical data indicates a typical market sell-off of approximately 10% during new rate hike cycles, with midterm election years seeing drawdowns of at least 7%.
• The election outcome triggered an unexpected "big sweep" and a flip in Texas, resulting in a stunned rather than panicked investor reaction that required significant portfolio repositioning.
• Analysts believe the market needs to "price in" volatility prior to elections, viewing the recent drop as necessary digestion rather than a fundamental failure.

Valuation Metrics and Market Indicators

• U.S. non-U.S. P/E ratios have reverted to post-COVID lows, supporting a stabilization of the growth trade and U.S. markets relative to international peers.
• Russell 2000 P/E multiples currently sit below the lows observed during the Iran war era and the 2025 tariff lows (approx. 12.5x–13x).
• While valuations at S&P 500 and NASDAQ 100 levels suggest the equity market is fighting back, there is concern regarding unspriced risks such as slowing AI Capital Expenditure (CapEx).
• The analysts' base case does not currently anticipate an economic contraction driven by AI CapEx slowdowns, though they acknowledge this is a "fluid story" not yet fully priced in.

AI Investment Thesis and Capital Expenditure

• Investor sentiment is shifting from 2027 earnings expectations to a longer-term 2028 horizon, questioning if the current earnings growth "cake is already baked."
• Concerns have emerged regarding a potential elongation or slowing of the AI CapEx cycle rather than an immediate termination.
• Regional banks report significant indirect AI exposure, warning that any slowdown in AI spending or a rise in yields above current levels could eventually damage earnings.
• Strategic uncertainty remains regarding the federal government's ability to regulate or impact AI developments compared to private sector initiatives.

Strategic Outlook and Forward-Looking Statements

• The firm maintains its 12-month forward target of $77.50 for the S&P 500 and does not adjust year-end targets in the final months of the year.
• Analysts predict the market will likely "fight back sooner rather than later," though precise trajectory remains uncertain due to post-election repricing.
• A comprehensive outlook update is scheduled for January and February to address the evolving macroeconomic and election-driven landscape.
• Recent financial sector earnings calls featured increased caution regarding 10-year yields pushing the economy to a breaking point and the potential for AI CapEx to face headwinds.