The stock market’s price action in the first trading week of November wasn’t defined enough for many people to fairly decipher what may lie ahead for the rest of the year. It behaved as if it had the makings of an angry tempest.
Seemingly everywhere there were headwinds, tailwinds, and crosscurrents whipping high-flying names around like uprooted trees in a tropical storm. For a time, many felt the closing bell on the first Friday of November couldn't come soon enough.
But today, let's discuss what news headlines triggered this temper tantrum and compare those narratives to objective data. Then we can analyze the turbulent market behavior.
An Unwarranted Comparison
Let's start with the elephant that entered the room in November. I’m talking about the AI trade, which suddenly is drawing unrelenting comparisons to the dot-com bubble from talking heads.
However, we at Cornerstone think that’s an unwarranted comparison. The AI trade is still young, as evidenced by the fact that capital expenditures are still accelerating, and not just in data center and electric grid buildouts.
These “bubble” critiques were once again brought to the forefront when NVIDIA CEO Jensen Huang stated China was just “nanoseconds behind” the U.S. in the AI race. That sparked concern from U.S. policymakers, tech leaders, and news pundits.
These critiques were intensified when Michael Burry, of the “Big Short” fame, disclosed a massive short position on the likes of Meta, Oracle and Palantir betting against the “AI Bubble”. Yet only a week later Mr. Burry deregistered and closed his infamous hedge fund, Scion Asset Management because, in his own words, “My estimation of value in securities is not now, and has not been for some time, in sync with the markets.” This was the definition of emotional headline news hysteria the likes of we haven’t seen in quite some time.
In what was a perfect storm, those concerns combined with a red herring relating to a new worry over the amount of AI-related debt being issued (around $1 trillion in 2025 so far). This led critics to call it a debt bubble that will never be able to be satisfied upon maturity.
An example is the $4 billion of conventional debt issued by OpenAI in 2024 that was underwritten by major banks. But as always, the devil is in the details. That debt round is part of a five-year funding strategy totaling over $1 trillion in AI infrastructure supporting massive deals with the likes of NVIDIA, Oracle, and Broadcom.
These deals are part of the $500 billion Stargate data center backed by SoftBank and Oracle. This is notable for its scale relative to OpenAI’s current revenue, but it’s imperative to understand the overall picture. Financing this long-term AI infrastructure build should be easily supported by projected revenues of over $200 billion for OpenAI no later than 2030.
The early stages of the AI race form the beginning of who will determine how global productivity is controlled and managed. Meanwhile, the AI critics clearly do not seem to understand the urgency to accelerate U.S. leadership in this modern-day space race.
As we look forward, we think Wall Street will be laser focused on NVIDIA’s upcoming earnings call on Wednesday. Specifically, investors will want to know about data center segment performance, Blackwell chip guidance, and margin sustainability details.
Consensus estimates project around $55 billion in total revenue for the quarter, with $48.88 billion of that expected to come from the data center segment. Both numbers would be increases of over 50% year-over-year.
Also, current earnings expectations are $1.23 per share. That would also be a 50% increase year-over-year. If history is any guide, the company will likely exceed projections across the board.
This type of earnings and revenue strength only begins to paint the picture of what we can expect in the years ahead. Forward growth projections will only accelerate.
This does not paint a picture of an AI trade reaching the end of its life cycle. The moat for the biggest AI companies is only getting wider. And quite frankly, the early-month digestion of 2025 gains is a healthy development.
Strength And Resilience of U.S. Companies
From a technical perspective, the big technology pullback in the first week of November took the Nasdaq 100 index to its 50-day moving average on Nov. 7. There it hit resistance as buyers and bargain hunters stepped in. Thus, it’s looking like a typical short-term pause that refreshes.
This support is even more evident in the chart below, where you can see how outflows within technology have begun to quickly subside:
It’s not a coincidence that this reversal coincided with the release of a flurry of positive economic data. For instance, the ISM Services index for October was strong, quickly reversing from a flat September:
Specifically, new orders and business activity surged dramatically.
That reinforced the continued resilience of the services sector, which is vital to overall economic growth.
We also saw supportive action in the 10-year Treasury as it ran into overhead resistance after the release of the strong ISM data:
Furthermore, JP Morgan released its global composite PMI data where the index held at 52.4:
This global composite data signaled to the market that there is continued growth ahead, even in the face of regional divergences and trade headwinds.
The confluence of positive data is further reflected in third-quarter earnings. As of this writing, 92% of S&P 500 companies reported results. Of them, 84% reported earnings surprises with an average beat of 7% above estimates:
This has increased expected year-over-year earnings growth to come in at about 13.3%:
We've also seen a recent increase in expected year-over-year sales growth, now anticipated at 8.2%:
For perspective, on Sept. 30, the estimated earnings growth was 7.9%. Now, 10 sectors are reporting higher earnings due to the magnitude of these positive EPS surprises:
The best part is it’s just getting started and is now reflected in the current 12-month forward year-over-year earnings growth expectations, which sit at 12.8%:
It should be no surprise then that as positive data silenced the noise, outflows quickly began to dry up:
The volatility caused by elevated trading volumes quickly dropped below the all-important 1,000 level mentioned last week:
Finally, the trusty Big Money Index slowed due to dropping outflows and volumes, creating a floor about a week ago:
Not only did we see a quick slowdown in outflows, but the cherry on top of this pivot that began on Friday, Nov. 7, is it also brought an increase in inflows, reversing the early November trend:
Taken together, this economic, fundamental, and market data is like receiving an early Christmas gift. It demonstrates the overall strength and resilience of U.S. companies.
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^ Nvidia, Oracle, Palantir and Meta are owned in Cornerstone client accounts. Daniel Milan owns Nvidia, Oracle, Palantir and Meta personally.
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