In Need Of A Jump Start
Risk assets staged an impressive rally over the holiday-shortened week, where the S&P 500 managed to claw its way to a modest gain for November after being down as much as -5.0% for the month at one point. This past week’s gain helped notch a seventh consecutive month of gains for both the S&P 500 and the Dow. That this is happening with the likes of Nvidia and Oracle still in the penalty box is rather impressive and a sign of the market broadening out (Nvidia was down -1.1% for the week and -12.6% for November, and set a two-month closing low on Friday while Oracle took the crown as the biggest loser in the AI capex-spendathon, falling more than -20% in November). It’s worth noting that market internals indicate a character change is afoot, with speculative/high-beta equities giving ground to the quality factor. Goldman Sachs' basket of non-profitable technology companies, which had been surging from just after Liberation Day, is down more than 20% since mid-October. It’s refreshing to witness sanity returning to markets, for however long it lasts.
As for the major averages, the Dow rose by +3.2%; the S&P 500 index added a +3.7% gain; and the Nasdaq composite jumped by +4.9%. The small-cap Russell 2000 led the advance, rallying +5.5% as investor confidence grows over the outlook for both the economy and the Fed. What else is incredible to witness is how the resumption of the Tech-led rally has taken hold with Bitcoin, the poster child for the risk-on trade, still some -30% below its prior peak and taking another thumping as we kick off the week.
The sector atop the leaderboard for most of the year, gold, did so again in November with a +5.0% gain, but it's been silver that’s been on a real tear – topping $56/oz to a fresh all-time high while its price has almost doubled year-to-date. Then there's copper, a beneficiary of the AI, EV, and power transitions underway, which hit a new all-time high and is up nearly 30% on the year. The oil and gas sector is one area that I’m constructive on going into 2026, where the news overnight that OPEC+ announced a plan to halt its output hikes for the next three months has WTI oil prices pushing back near $60/barrel. Keep your eye on Energy stocks, which seem primed for a counter-trend bounce and trades at cheap multiples, currently nearly a 30% discount to the overall market.
Speaking of energy, UBS just put out an exhaustive report on the power demands about to hit the US grid from AI, where they concluded the US needs 100-200 GW of new capacity within a decade. That is roughly an 8-16% increase and equivalent to constructing 10-20 new nuclear reactors, or 150+ natural gas plants just to prevent Gemini or ChatGPT from lagging. Perhaps investors need to spend less time debating whether AI is in a bubble and more time evaluating opportunities in the physics problem confronting the power grid. A single Nvidia GPU now consumes as much power as an entire US household, and hyperscaler datacenters deploy half a million to a million of them at a time. Do the math, and you quickly conclude that if this AI theme runs its course (more likely than not), then we’re not contending with an innovation problem in technology, but rather an innovation problem in not being able to provide enough power on a timeline that doesn’t constrain the ongoing pace of AI innovation.
The chart below spells out the dilemma in simple ‘chapter and verse’ – power demand will greatly outpace generating capacity unless something changes to alter the current course.
What this all boils down to is that there is no AI without power, and right now, AI is outbidding everyone else for the last electrons on the grid. Keep in mind this is a solvable problem, but it will likely require coordinated actions between both private and public sector actors. The private sector has the deep pockets and the demand (Microsoft, Amazon, Meta, Alphabet, Oracle…) where they can – and if they must, will – steamroll consumer access. This will push prices higher (we’re already seeing it), which inevitably draws in local and national leaders to broker a solution. We’re already seeing the framework for a coordinated (private/public) strategy with the rollout of the Genesis Mission. This is a genuine attempt to accelerate compute capacity, advanced manufacturing, semiconductor depth, energy infrastructure, nuclear and fusion investment, critical minerals, and the research ecosystem around AI.
This gives me some comfort and a mild dose of enthusiasm that a private/public initiative is coming together in a manner that is pushing the entire productive base of the economy towards a specific technological goal.
The last thing I want to hit on in this short note is the news that the President seems to have made his decision on who will replace Jay Powell as Fed chair. The rumor mill and betting markets (57%) indicate that current NEC Director Kevin Hassett could be announced as early as this week. Hassett is considered the most dovish of the candidates and has a reputation as a ‘yes man’ to the President.
As for closing thoughts on the market, I remain indifferent toward most asset classes. That means I’m content holding a combination of stocks, gold, commodities, and bonds while being neither bullish nor bearish on any of them in particular. I think, like the power grid, the economy is in need of a jump start to revive several areas that remain weak (housing, manufacturing, capex outside of AI, and the low-end consumer), the labor market is fragile as it confronts challenges on both the supply and demand side of the equation, and corporate profit growth, while strong over the last twelve months, is going to struggle to meet the +12% estimates being penciled in for 2026. Meanwhile, equity valuations are far from cheap, and bond yields, while adequate, don’t offer much compensation to offset sticky-high inflation on an ongoing basis. Gold remains a staple in a diversified portfolio, and while I expect its long-term trend to be higher, you have to acknowledge that a +60% move in 2025 (after a 25% move in 2024) is unlikely to repeat going forward. Aluminum, oddly enough, is a commodity we’ve been kicking the tires on of late, but I’m not ready to render too much of an opinion on it as of yet.
So, like I said, indifferent is my overall view on capital markets at the moment. Although it's worth adding that it does seem like equities, after the mild 5% pullback, are reverting back to their default state of drifting higher until proven otherwise. These are the conditions that produce the annoying, grinding, reluctant melt-ups investors underestimate at this time of year.
For those of you who took the time to read Mike Green’s Substack piece last week, My Life Is a Lie, you’re in good company, as it went viral and attracted national media attention. He published a follow-up piece, which is focused more on pushing back against the mob that came at him for his Part 1 piece, but it is still a worthy read (Part 2: The Door Has Opened), and most importantly, it does the job of forcing a conversation that needs to be had.
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