While the tech-heavy Nasdaq Composite slipped last month, both the Dow Jones Industrial Average and the S&P 500 shook off a modest mid-month decline to notch their seventh consecutive monthly advance, according to MarketWatch.
|
Key |
||
|
|
MTD |
YTD |
|
Dow |
0.3 |
12.2 |
|
Nasdaq |
-1.5 |
21.0 |
|
S&P |
0.1 |
16.5 |
|
Russell |
0.8 |
12.1 |
|
MSCI |
0.9 |
24.9 |
|
MSCI |
-2.5 |
27.1 |
|
Bloomberg |
0.6 |
7.5 |
Source:
Wall Street Journal, MSCI.com, Bloomberg, MarketWatch
MTD returns: October 31, 2025–November 28, 2025
YTD returns: December 31, 2024–November 28, 2025
**in US dollars
What happened during that mid-month dip? Over six trading
days, the S&P 500 Index declined by a modest 4.6% amid fears that the AI
boom could lead to an AI bust.
Let’s start with a big-picture view. Driven by surging
demand for computing power, McKinsey & Company projects that global
investment in data centers could reach $6.7 trillion by 2030.
But forecasts are never set in stone, and forecasts vary
widely, according to McKinsey.
Last month, high valuations for AI-focused technology
companies came under the microscope, and market volatility, while still
subdued, picked up.
But let’s be real, too. Forecasts aren’t guarantees, and
visibility beyond the short term is limited, as the pace of AI innovation makes
future demand hard to pin down. As McKinsey noted, “A lack of clarity about
future demand makes precise investment calculations difficult.”
In part, massive capital expenditures are raising red flags.
This year alone, major tech firms plan to pour about $400 billion into AI
efforts, according to The Wall Street Journal. And they say it
isn’t enough amid soaring demand for their products.
Given the huge outlays, it’s still unclear when these
companies might see meaningful returns. Moreover, many of the biggest players
are now tapping debt markets to fund cloud and AI projects, a notable shift
from their general reliance on cash reserves.
And then there’s OpenAI, the privately held powerhouse
behind ChatGPT. It’s a central figure in the AI boom, but investors worry it
might be over-leveraged, over-committed, and overvalued. Its business model
seems to depend on unbridled optimism in capital markets to sustain its need
for cash as it ramps up capacity to meet demand.
With huge spending plans and mounting losses that may roll into 2029 or 2030,
OpenAI seems to be a risky bet, according to some folks, even as it remains one
of the most influential players shaping the future of AI.
Yet, others argue that concerns are overblown.
Revenues at OpenAI are rising quickly—driven by paid subscriptions to ChatGPT—and
enterprise adoption is strong. Moreover, OpenAI has deep ties to the world’s
largest technology firms, and it is beginning to diversify beyond ChatGPT.
In summary
Bull case: OpenAI could become the backbone of global
AI, driving massive revenue growth while using strategic partnerships to keep
costs under control.
Bear case: Spending might spiral beyond returns, and
governance problems could flare up. If competition heats up or valuations drop,
OpenAI could face a serious financial strain.
The Fed: Words move markets
Yet, as quickly as the modest bout of volatility flared up,
stocks rallied into the end of the month after a Fed official hinted that
another rate cut was in the pipeline.
When we highlight actions by the Federal Reserve, we rarely
reach beyond Fed Chief Jay Powell. Anything else is, well, too wonky and too
granular in our view.
But the president of the influential Federal Reserve Bank of
New York hinted that at least one more rate cut is on the way, and that
reignited the rally.
What did he say? “I still see room for a further adjustment
in the near term to the target range for the federal funds rate…” That’s all it
took.
Let’s decipher. “Adjustment” is FedSpeak for a quarter-point
rate cut, and “near term” was taken by investors to mean December.
Why did one speech from an influential regional Fed
president move markets so dramatically and remove the spotlight from AI? It’s
hard to say for sure, and we can only speculate, but odds are he wouldn’t have
floated a December rate cut without Powell’s tacit approval.
I trust you have found this review informative and helpful.
If you have any questions or would like to discuss any other topics, please
don’t hesitate to reach out to me or any member of our team.
Thank you for choosing us as your financial advisor. We are
truly honored by your trust and remain committed to serving you with integrity
and care.
