The S&P 500 is facing a potentially distressing trend this November, as it is on track to record its most significant decline for the month since 2008. Traditionally considered a strong month for U.S. equities, the S&P 500 has historically averaged a gain of 2.2% during November since 1980, surpassing all other months by a full percentage point. This year, however, the index has slipped over 1.2% so far, raising concerns about economic conditions and stock market valuations and setting the stage for its worst November performance since the Great Recession.
Investor sentiment is clouded by fears that the Federal Reserve may refrain from lowering interest rates during its December meeting. Despite previous optimism that interest rate cuts were imminent, the likelihood of another reduction has fallen to around 50%. The initial expectation had been that the Fed would cut rates by 25 basis points in both October and December; however, the anticipated move in December seems far from assured.
Compounding these issues are worries surrounding the impact of tariffs and inflation. President Trump has long asserted that tariffs primarily burden foreign companies; however, recent reports indicate a shift in this narrative, as the administration seems poised to eliminate duties on specific goods to mitigate price pressures—an implicit acknowledgment that American consumers are shouldering the cost of these tariffs. According to Goldman Sachs, U.S. companies and consumers are expected to absorb approximately 77% of the tariffs by the end of 2025, with consumers bearing over 50% of that strain.
Further complicating the economic landscape, a survey of more than 60 economists revealed a consensus that inflation levels are likely to stay above 3% well into the next year, significantly exceeding the Fed’s 2% target. This sustained inflationary environment adds to market uncertainties and heightens the scrutiny surrounding the Fed’s upcoming policy decisions.
Recent economic indicators also paint a troubling picture. The University of Michigan’s consumer sentiment index fell to 50.3 this month, marking one of the lowest readings in history. Consumer sentiment significantly influences GDP growth, and such bleak figures are particularly disconcerting for investors.
Additionally, the S&P 500’s forward price-to-earnings ratio recently surpassed 23, a level reached only once in the past quarter-century and previously associated with significant economic downturns. In mid-2020, an elevated valuation marked a period of underestimating the impact of COVID-19 on supply chains, an oversight that led to a 25% decline in the index over 18 months.
The elevated levels of market valuations, coupled with the persistently adverse economic indicators, raise alarms about a potential bear market. The Trump administration’s tariffs, which have elevated the tax burden on U.S. imports to the highest levels since the 1930s, have contributed directly to inflation and uncertainty within the business sector, limiting job growth and dampening consumer confidence.
As economic data resumes following the recent government shutdown, investors must remain vigilant. The convergence of these economic pressures suggests that a bear market could be on the horizon if conditions do not improve. To mitigate potential losses, market participants are advised to reassess their portfolios, focusing on avoiding overvalued stocks and considering increased cash positions to weather the storm ahead.
