Looking forward: Daylight again?
November 25, 2025
-
2 min
November 2025 highlights
Almost Cut My Hair: While markets and policymakers alike have been forced to rely on third- and fourth-tier data during the shutdown-induced data vacuum, they haven’t been completely flying blind. Jobless claims are simply the aggregated total of state-level claims, and fortunately, state governments weren’t shut down. Those claims in addition to a wide array of private sector employment data and commentary confirm what we knew before the shutdown: The labor market continues to cool in linear fashion as we remain stuck in a low-hire, low-fire stasis.
Carry On: Speaking of third- and fourth-tier data points, investors were particularly myopically focused on the large uptick in layoff announcements in the latest Challenger Report. Investors are clearly on high alert for any evidence of that linear cooling morphing into a nonlinear acceleration, but the layoff data is third-tier data for good reason. The report poorly tracks actual discharges, but layoffs are a normal part of labor market churn and there’s little confirming evidence that actual layoff activity is spiking materially.
Déjà Vu: Market breadth. It feels like every year we hear that the market is being driven by only a handful of names and signifies that the gains are unsustainable and a pullback is imminent. The problem is that’s the norm. Empirically, a small share of issues have been responsible for the vast majority of capital appreciation over the long run. Narrow breadth is a feature, not a bug. And this year it hasn’t been narrow as much as it’s been top heavy. Fade the narrow breadth fears.
4 + 20: Another annual refrain surrounds valuations. Markets advance, multiples expand, and the bears claim the market is too rich. But multiples are not dynamic – they exhibit distinct regimes. And more importantly, the composition and quality of the market have shifted dramatically over the past few decades, making comparisons to long-term averages fraught with issues. The market is now less cyclical, higher quality, and higher margin. The fundamentals justify higher multiples, and adjusting for that quality shift reveals a market that is hardly expensive.
Our House: Not long ago, a simple data center construction announcement or circular financing deal was enough to deliver eye-watering gains in markets. But those days appear to be over as the market’s reaction function has shifted from rewarding ever-growing CapEx spend to punishing it given the market’s newfound concerns around ROI. And a handful of recent debt-issuance deals by the hyperscalers has only dampened sentiment further. But as markets love to do, that narrative appears to be going too far. CapEx intentions continue to rise, but so does cash flow, and the major hyperscalers continue to generate more than sufficient cash flow to expand CapEx and continue returning capital to shareholders with plenty to spare.
