The major indexes rebounded strongly in November after a difficult October, buoyed by optimism following Donald Trump’s decisive presidential victory. The S&P 500 closed the month with a 5.7% gain—the largest one-month increase of the year.
The consumer cyclical and financial sectors emerged as the top performers for the month. A closer examination reveals two key players driving these gains.
Amazon (#AMZN) broke through a critical resistance level, dubbed the “Bezos Wall” at $200, on November 6th. This level, highlighted in our previous newsletter, has now turned into a solid support, successfully withstanding a subsequent retracement.
Tesla (#TSLA) also made headlines by breaking out of a two-year downward trend on the same day. Following Trump’s victory, Elon Musk made bold moves, ultimately ending Tesla’s three-year bearish trend. This breakout could be the foundation of a W-shaped bottom, signaling the potential for a sustained bullish rally in the future.
Bitcoin is currently trading at $97,400, recovering from overnight lows of around $95,700, but still shy of its all-time high near $100,000 reached a week ago. The cryptocurrency has surged over 35% since the U.S. election, driven by investor optimism that a Trump-led White House and a crypto-friendly Congress will introduce favorable policies for the asset class.November 6th proved to be a pivotal day for Trump-related assets, with Bitcoin breaking out of a three-month consolidation range. After its first retracement on November 13th, Bitcoin pulled back just short of the psychological $100,000 mark. It now appears to be forming a new base, positioning itself for another attempt at this key level. However, investors should remain cautious. Unlike traditional assets, Bitcoin’s value is driven more by market sentiment than fundamentals, making it highly volatile. Tight stop-loss levels are essential to manage risk effectively.
Market Outlook
Since the August pullback, the market has remained within its uptrend channel, and we anticipate this trend will continue through year-end. The potential for a Santa Claus rally—a seasonal trend of market gains in late December—remains on the horizon.
The rally has broadened, with the Russell 2000 aggressively catching up, while gains for the Magnificent 7 (the top-performing tech giants) have slowed. However, as the bull market progresses, valuations are becoming increasingly stretched.
The CAPE ratio (Cyclically Adjusted Price-to-Earnings) has now surpassed its 2021 peak, making the market the second most expensive in history, trailing only the Dotcom bubble.
Meanwhile, Warren Buffett’s Berkshire Hathaway has increased its cash holdings to a record $325 billion, signaling a cautious approach in the face of elevated valuations.
While inflation continues to cool, the pace of improvement has slowed. Adding to the uncertainty, Donald Trump recently announced plans to impose a 25% tariff on all products from Mexico and Canada, along with a 10% tariff on goods from China. Economists at Goldman Sachs estimate that if implemented, these tariffs could raise core PCE inflation by 0.9%. The impact on Federal Reserve policy remains uncertain. Will the Fed reconsider further rate cuts in response to inflationary pressures? Additionally, Elon Musk’s proposed Department of Government Efficiency (DOGE) aims to slash federal spending by $2 trillion. However, unlike Twitter, where Musk reduced the workforce by 80%, the federal government may be far less flexible to such dramatic cuts.
As we move into the final stretch of the year, the market remains poised for further gains, but risks are mounting. Elevated valuations, potential tariffs, and uncertain fiscal policies require investors to stay vigilant. The bull market is advancing, but agility and caution will be essential as we navigate the opportunities and risks ahead.
Sen Zhang
Managing Partner
Corrigit Capital Group