Volatility Returns, Fundamentals Remain Strong
By TRG Advisors on November 12, 2025
Growth Intact. After a calm stretch through September and October, volatility has finally resurfaced in early November. The S&P 500 is still up 15% year-to-date and 36% from the April 8th lows. While headlines around layoffs and labor market uncertainty have added to near-term jitters, the broader backdrop remains resilient. Government data remains limited due to the shutdown, but private indicators like ADP employment and ISM surveys suggest that the labor market is cooling, not collapsing. In the most recent ADP report, U.S. companies added 42,000 jobs[1], indicating signs of stabilization in the labor market. Many of the announced layoffs appear more tied to post-COVID over-hiring and productivity gains from AI, rather than signs of widespread weakness. At the same time, corporate fundamentals continue to impress. The Atlanta Fed’s GDPNow tracker remains at 4%, and earnings growth has accelerated to 12.3%.
AI and Industrial Strength. Beneath the surface, the AI and data center investment cycle remains a powerful force driving industrial and technological strength. Rockwell Automation (ROK), seen as a traditional industrial name, posted adjusted EPS of $3.34 vs. $2.47, up 35% year-over-year, and nearly 14% revenue growth. Eaton Corporation (ETN) reported data center sales up 40%, orders up 70%, and total backlog up 17% year-over-year.[2] These figures highlight how deeply this AI-driven CapEx cycle is rippling through the economy.
Even among Apple, Amazon, Microsoft, and Alphabet, earnings estimates have been revised higher following results, underscoring the durability of profit growth in the sectors most exposed to cloud, data center, and AI infrastructure spending. Despite the market’s recent volatility, the underlying story remains one of strong growth, expanding margins, and powerful secular investment tailwinds.
Profitability From the Banks. The banking sector is showing signs of improvement. Return on tangible common equity (ROTCE), a key measure of profitability, has been rising across the major banks. J.P. Morgan, Wells Fargo, Morgan Stanley, and Bank of America all reported higher ROTCEs this quarter, signaling better cost control and margin recovery. In Q3, Morgan Stanley delivered an impressive ROTCE of 23.5%, J.P. Morgan posted a ROTCE of 20%, Wells Fargo reported 15.2% and raised its medium-term target to 17–18%, and Bank of America came in at 15.4%, also lifting its target range to 16–18% at its first investor day since 2011.[3]
Positioning for 2026. While the broader setup remains constructive, investors are becoming more selective. Some are using recent volatility to harvest losses for tax purposes or trim positions that failed to participate in the rally. At the same time, there’s growing interest in quality growth names that have corrected sharply but continue to show operational improvement. Starbucks is beginning to show signs of a turnaround under CEO Brian Niccol. The stock initially surged 48% in 5 months following his appointment, but has since given back those gains. Starbucks recently beat revenue expectations with $9.6 billion versus analyst estimates of $9.34b and reported its first positive same-store sales growth in nearly two years, which is a meaningful milestone that signals early progress. Uber also had a positive quarter in the consumer-tech space. The company reported 159% earnings growth and over 20% revenue growth, with gross bookings up 21% year-over-year. The delivery business for Uber also accelerated the most in 4 years, up 25%.[4]
Looking Ahead. Historically, markets tend to finish the year on a strong note, and the setup into year-end 2025 appears no different. Over the past five years, the S&P 500 has gained an average of 8.6% cumulatively from October through December, with cyclical and growth-oriented sectors typically leading the way. Financials have averaged the strongest performance at +11.9%, followed by Technology +10.6%, Industrials +10.4%, and Energy +9.5%.[5] Even defensive groups such as Consumer Staples and Utilities have posted solid mid-single-digit gains during this period.
With roughly $7 trillion sitting on the sidelines, this level of liquidity represents pent-up buying power that could reenter equities as confidence builds into year-end. Meanwhile, credit spreads remain notably tight, a signal that financial markets are not flashing signs of stress. Corporate balance sheets are healthy, funding costs remain manageable, and the bond market continues to validate the soft-landing narrative. Taken together, liquidity and stable credit conditions create an environment where any short-term volatility should be viewed as an opportunity rather than a warning. Historically, the market’s strongest seasonal stretch occurs between October and December, and this backdrop of sidelined cash and contained risk premiums provides strong support for that pattern to continue.
Fixed Income. U.S. Treasury yields ended the week largely unchanged, masking notable intraweek volatility driven by mixed labor market signals. Yields rose sharply on Wednesday following a stronger-than-expected October ADP employment report and an upside surprise in ISM Services data. However, Thursday saw a reversal as the Challenger Job Cuts report revealed a softer labor market tone, prompting a modest pullback in yields. By week’s end, the 2-year and 10-year yields declined by 2 & 1 basis points, respectively, while the 30-year yield edged higher by 1 basis point.
Corporate credit spreads widened across both investment-grade and high-yield last week. Investment-grade spreads expanded 3 basis points to +118, while high-yield spreads widened 12 basis points to +352.[6] Municipal bond market performance followed Treasuries last week, as yields were 1 basis point lower across the curve.
[1] Bloomberg: As of November 5, 2025
[2] Eaton Corporation: Earnings Call: As of November 4, 2025
[3] Bloomberg: As of October 2025
[4] Bloomberg: As of November 4, 2025
[5] Bloomberg: As of November 7. 2025
[6] Bloomberg: As of November 9, 2025