It was an ugly week for stocks.  The NASDAQ led markets lower as it dropped 3.0%.  The S&P 500 and Dow Jones Industrial Average were both lower by over 1% and the MSCI EAFE fell almost 1%.  Unsurprisingly, the Cboe Volatility Index rose almost 10% and sits just over 19 implying that volatility is likely to remain elevated for at the least the short term.  Bond prices were flat for the week with very little evidence of a flight to safety in U.S. Treasuries.  Broad commodities were slightly higher with oil down 1.5% and gold breaking its losing streak and rising 0.4%.  The U.S. Dollar was broadly mixed against major currencies.  It looks like we might see the government reopen after last night’s vote in the U.S. Senate.  The bi-partisan bill would reverse the firings of federal workers and ensure that all federal workers receive back pay.  There is still some work for Congress to do, and hopefully they will deliver later this week.  As a result, we will enter the 7^th week with no government data releases other than the one off CPI report from October although is subject to change, and I’m not sure when government data will resume its flow.  Earnings will continue, but it is mostly over other than NVIDIA’s release on 11/19.  (Source: Jalonic, M.C., Mascaro, L., Senate take first step toward ending the government shutdown, AP)

 Earnings and Revenues Rise Again

 91% of the S&P 500 have now reported earnings.  82% of those reporting have beaten analysts expectations which is above the 5 year average (78%) and 10 year average (75%).  This matches the highest percentage of companies beating earnings estimates since Q3 of 2021 (also 82%).  Companies are beating estimates by an average of 7.0% which is below the 5 year average of 8.4%, but I’m willing to give a pass on this because earnings were being upgraded coming into the quarter which is unusual.  Earnings growth now stands at 13.1% for the quarter after estimates for earnings growth was 7.9% back on September 30 and had risen to 10.7% as of 11/3.  If the current rate holds, it will be the fourth consecutive quarter of double digit earnings growth.  Revenues look even better in my opinion.  Revenue growth is currently at 8.3% with expectations of 6.3% earnings growth back on September 30.  This is the highest revenue growth rate since Q3 of 2022.  All eleven sectors of the S&P 500 have reported revenue growth.  The market is continuing to punish earnings misses at a higher rate of -5.1% (average price decrease in the two days prior and two day after earnings) than the 5 year average of -2.6%.  Meanwhile, earnings beats are seeing no price change at all.  Financials (23.7% earnings growth vs expected 11.6%), Consumer Discretionary (8.0% earnings growth vs expected -2.45) and Information Technology (27.1% earnings growth vs expected 20.95) have seen the most improvement while Communication Services has seen the biggest decrease (-7.1% earnings growth vs expected 3.0%).  Net profit margin for the S&P 500 has risen to 13.1% which is now the 5 year high.  It has been difficult to understand why markets have pulled back in the past two weeks with excellent earnings growth in my opinion.  Revenues and profit margins are quite high from my view, and I think that leads to higher markets over time.  This week 11 S&P 500 companies including 2 Dow 30 components will report earnings.  (Source: Butters, J., Earnings Insight November 7, 2025, FactSet)

  What Does Negative Gamma Have To Do With Anything?

 This section is going to be a bit technical, so hang in there with me.  Or just skip this one.  Gamma in markets refers to how much the delta on an option changes when the underlying stock or index price changes.  Negative gamma is a condition that exists when option dealers (broker-dealer banks like UBS, Morgan Stanley, Goldman Sachs, etc.) hedging activities increase price swings.  This occurs when Hedge Funds, Commodity Trading Advisors (CTA), or Institutional Investors make large option trades.  Let’s say a large trader makes a trade at a specific price on the S&P 500 like 6700, so the option dealer will take a position on the other side of the trade as a hedge.  The options dealer does this for risk management and liquidity.  They don’t want one big position to move markets or make a slice of the market illiquid.  When these options are expiring, Negative Gamma has the practical effect of moving a stock or index closer to the price where the big traders have placed their big trades.  This can lead markets to superficially rise or fall to match the options market as the options expiration approaches.  I think the impact of Negative Gamma can be even higher when liquidity is low.  That is usually the case that low liquidity markets see price movements exacerbated as the market has to look harder for the marginal buyer (or buyer of last resort).  In my opinion, that is what we have seen in the past two weeks.  Looking at the price action last week, you could see the S&P 500 bouncing off of 6750, but when the S&P 500 broke below that level, it felt like a trap door down to 6700.  Then the S&P 500 fell below 6700 and it seemed like another trap door down to 6650.  Later Friday, markets rallied to the close.  It appears likely to me that Friday’s early action was covering of options, both long and short, and when the options activity subsided markets moved higher again.  I wanted to point out the impact that large options trading can have on markets because in the absence of this technical discussion of the stock market’s plumbing, you are left with vague explanations of the market last week.  Things like ‘investors are worried about valuations.’  To me, this is a market that has moved significantly higher over the past 6 months and we should expect the occasional bout of volatility as a result of outsized moves.  The cause of the moves in the past two weeks, in my opinion, was most likely Negative Gamma.  (Sources: Kolakowski, M., How The Gamma Effect Is Distorting The Stock Market, Investopedia; Kramer, M., Negative Gamma, Weak Momentum, and Liquidity Strain Drive Stocks Lower, Mott Capital Management) 

 Mixed Jobs Reports

 In the absence of the Bureau of Labor Statistics jobs reports, private releases have taken a higher profile.  If you are a long time market watcher, you’ve probably heard of both ADP’s monthly National Employment Report, and Challenger, Gray, and Christmas’s Challenger Report.  ADP usually turns up in media reports, but I haven’t heard much about Challenger in a little bit.  That changed last week as there were multiple, breathless reports on the  Challenger Report.  To be sure, the headline was jarring: JOB CUTS SURPASS 1 MILLION; HIGHEST OCTOBER TOTAL SINCE 2003.  COMPANIES CITE COST-CUTTING, AI IN OCTOBER.  It went on to say that there were 153,074 job cuts announced in October, up 175% from last year and up 183% from the 54,064 job cuts announced in September.  There is no doubt that is a big number, but does it mean anything?  I think it is some confirmation that the job market has been weak over the summer, but I don’t find this to be a harbinger of a terrible recessionary fate.  While October’s report wasn’t great, it was only the third worst of this year.  March saw 275,240 layoffs and February saw 172,017.  Even with a 10 month lag, shouldn’t we be in a recession by now?  I have spent a considerable amount of time researching this and I can find no correlation between Challenger and economic performance.  A cherry picker might say that there were almost 2 million layoffs in 2001 so there’s the correlation smart guy.  But layoffs would average over 1.1 million from 2002-2009.  In fact, announced layoffs have averaged about 950,000 per year in the last 6 years.  The outlier in 2025, has been the reduction in government and government contractor jobs.  There we’ve seen 307,638 layoffs this year after only 37,746 in 2024.  Technology is firmly in 2^nd place with 141,159 layoffs announced, but there were 120,470 layoffs in Tech last year.  Warehousing is 3^rd in layoffs with 90,418 after only 18,904 last year.  Looking by region, I think we are seeing demographic changes at play as well as DOGE.  The District of Columbia has seen 303,778 announced layoffs and that looks directly related to DOGE in my opinion.  Next we see New York with 81,701 layoffs and New Jersey with 64,334.  In the West, California has seen 158,734 layoffs and Washington at 77,658.  That is about 60% of the total layoffs within those 5 areas.  Less than a quarter of the layoffs are the result of Restructuring, Cost-Cutting or Bankruptcy.  The ADP report was positive in my opinion.  It showed that private employers added about 42,000 jobs in October.  Dr. Nela Richardson, Chief Economist at ADP, said this about the month “Private employers added jobs in October for the first time since July, but hiring was modest relative to what we reported earlier this year.  Meanwhile, pay growth has been largely flat for more than a year, indicating that shifts in supply and demand are balanced.”  That sounds very similar to what Fed Chair Powell and other Fed members have been saying.  I have been thinking of job growth as stagnant for a while.  According to ADP, the U.S. job market is a little better than I thought.  Private employment is up around 600,000 this year and is up almost 4 million jobs in the past 3 years.  That isn’t to say there aren’t pockets of weakness.  Like we saw in the Challenger Report, the East North Central and New England regions have seen very little private employment growth while the Sun Belt area has seen the most private employment growth.  Labor market weakness is always a concern, but I think these reports show that we aren’t seeing anything too far outside of the norm.  Not yet anyway.  (Sources: Challenger Report, October 2025, Challenger, Gray & Christmas, Inc.; ADP Research, ADP National Employment Report October 2025, ADP)

 Positioning Your Account

 All this valuation talk sent me down a rabbit hole this week.  I started wondering if we’ve ever had a recession when earnings and revenue are going up.  I won’t bore you with the details, but the short answer is no.  I couldn’t find a recession when earnings and especially revenues are going up.  Please feel free to double check me, but what we typically see is that earnings and revenues flatten out with little growth and then a quarter or two later, they fall and the recession is about to or has already started.  There are all these great technical indicators like the ominous Hindenburg Omen that was triggered twice in the last two weeks.  The equally terrible sounding NASDAQ Titanic Syndrome has flashed 4 times in the past two weeks.  Fortunately for investors, these indicators are about a coin flip in terms of their predictive accuracy.  The NASDAQ Titanic Syndrome also flashed in 2023 and 2024 and markets are up nicely since then.  Given the unique nature of worries we face in 2025 where we see very little job growth, but unemployment hasn’t really moved higher, inflation above trend, a shut down government, some of the worst consumer sentiment on record, and AI bubble fears, what can we believe in?  For me, it isn’t a corporate or political belief that gives me confidence right now, it’s the numbers.  The numbers show GDP more than double the trend of this century.  The numbers show earnings, revenues and profit margins are at or near decade highs.  The numbers are showing that investment into the U.S. is the highest this century.  The numbers show rapidly rising productivity.  Until the numbers change, I think I still want to own more stocks.  I would encourage investors to consider employing a dollar cost averaging approach (DCA) to deploying cash on the sidelines.  I think periods in the market like we are seeing today are the best endorsement I can give to DCA.  Putting a slice of cash to work during volatility gives you optionality in my opinion.  Maybe it’s the near term bottom.  If so, great, you got to buy something during a small pullback.  If markets fall further, you are still in good shape because you have more dry powder and get to search for the bottom again.  We only get so many dollars to invest, so I think we have be prudent with buying and ruthless in selling.  I encourage investors to consider purchases in large, U.S. tech companies, large, U.S. dividend payers, small U.S. companies for investors comfortable with higher levels of risk, and currencies and commodities for diversification.  My prediction from two weeks ago for higher markets looks terrible.  That is why I consider myself an investor and not a trader.  That said, I’m still optimistic we’ll see higher markets as the year closes. (Source: Adinolfi, J., A cluster of ominous stock-market signals hints at a rocky year ahead for investors, Dow Jones)     

All the best,

Gary