Economic market update: November had a choppy start, but ended strong

Choppy start with a strong finish

The equity market faced some challenges through most of November but rallied into the holiday to generate a very small positive return for the month. At the time of writing, year-to-date performance for the S&P 500 sits at nearly 18% (including dividends). Given all of the uncertainty on both the economic and political front, we have enjoyed robust market returns thus far in 2025 – leaving us enormously thankful for what has transpired.

Equity prices spent most of November struggling to digest the uncertainty surrounding the upcoming Federal Open Market Committee (FOMC) meeting. The financial markets had previously priced in nearly absolute certainty that the Fed would deliver a rate cut at their December meeting, but that assumption came under serious question throughout November.

Rates still top of mind

We have pointed out since September that the latest Fed “dot plot” clearly illustrates that the Fed is divided on whether another cut is appropriate in December. Fed governors’ commentary throughout November further solidified this point. Some members are in favor of proactively cutting rates now, while others are more concerned about inflation and prefer to react to changes in the economic data. The markets finally woke up to this reality in November and a few weeks of choppiness ensued.

The Fed has been grappling with a serious lack of current economic data, due to the government shut down through most of October. The December FOMC meeting is early in the month, with several data points for inflation and the labor markets releasing after the meeting. It may be difficult for them to reach a consensus on further rate cuts simply due to lake of sufficient data.

What will the fed do?

There seems to be broad consensus amongst Fed members, and amongst the major forecasters, that overnight rates will fall to roughly 3.25% by the end of 2026. The precise timing of the next few cuts shouldn’t matter much in the longer run because the overall trend is what will influence the markets.

We believe the Fed will cut three more times before December 2026, which should help broaden the economic expansion across the entire system to include more than just the highest income households and the AI-related corporations.

We expect a tremendous amount of anxiety around the upcoming meeting and follow-up commentary from the Fed. Our best guess is that they take a pause in December due to the lack of sufficient current economic information. Chairman Powell’s follow-up commentary will likely seek to reassure market participants that they intend to provide rate relief over the upcoming year but point to their need to remain data dependent as more economic research becomes available to them.

If they choose the proactive route and cut rates at the next meeting, we expect a strong positive reaction in the markets, but the longer-term target of 3.25% is what truly matters. We remain cautiously optimistic heading into next year and believe that lower rates should help boost our economy to a steadier growth pattern near the 2% long-term average.

Tariff update

The average tariff rate is presumed to land near 17% and appears to be fully discounted by the financial markets, with little expected long-term drag on economic activity. The Supreme Court is still reviewing the tariff changes and is expected to rule on their constitutionality by year end. That said, it appears there are backup measures in place in case the current tariffs are struck down. Regardless of court outcomes, the financial markets are assuming a 17% tariff burden of some type.

Outlook and economic summary

As we stated last month, the current economic and market expansions are being driven by a narrow group of households and companies, which is not a viable long-term plan for the world’s most dynamic economy.

We continue to believe that overall U.S. economic activity is headed for a brief below-average patch, and the labor market is in a somewhat weakened state. Inflation is still too high, but the FOMC believes it will taper off on its own in 2026. The equity markets will be bolstered as interest rates head lower, which should help broaden economic expansion throughout 2026.

We are becoming more optimistic that we could be headed for more stable, sustainable economic growth, but remain cautious due to challenging signals from the labor market and lofty valuations in the equity markets.

We continue to remain neutral in our risk allocation, believing that the time for heavier risk exposure is still yet to present itself.

We are here to provide our clients with peace of mind about their financial future. Anchoring to a sound, long-term financial plan will help everyone weather storms like these. We will remain disciplined, and consistent in our strategies and philosophies. We are confident that together we will manage our way through this (hopefully brief) challenging time.

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UMB Investment Management and UMB Private Wealth Management are divisions within UMB Bank, n.a. (a subsidiary of UMB Financial Corporation) that manage active portfolios for employee benefit plans, endowments and foundations, fiduciary accounts and individuals. UMB Financial Services, Inc., Member FINRA, SIPC, offers broker/dealer and investment advisory services to retail and institutional investors and is also a subsidiary of UMB Financial Corporation and is an affiliate of UMB Bank.

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