As we enter the final stretch of 2025, global markets are navigating a complex mix of monetary policy uncertainty, elevated equity valuations, crypto volatility, and a shift towards defensive positioning among both retail, high net worth and institutional investors.

The “ABC Market”
This month’s themes revolve around what I call the “ABC Market”:

• A: Artificial Intelligence (AI) – Lofty valuations, rapid capital expenditure, and questions about sustainability.
• B: Big Tech – The Magnificent Seven now dominate nearly 40% of the S&P 500.
• C: Concentration – Risk has become increasingly clustered in a handful of mega-cap names, making markets more sensitive to narratives and earnings surprises.

Although the fundamental backdrop remains relatively stable, volatility has re-emerged across asset classes. With rate cuts on the table, Bitcoin retracing sharply from historic highs, and most fund managers still underperforming the S&P 500 benchmark, investors are shifting towards defensive, yield-oriented portfolios ahead of year-end.

This report outlines the key drivers shaping markets in November, the risks investors should monitor, and recommended positioning for Q4.

1. Macro Outlook: FOMC, Rates & Liquidity

Fed Rate Cut Expectations
Markets currently price a high probability of a 25 bps rate cut at the mid-December FOMC meeting. As of early November:

• Market-implied probability: ~65–70%
• Potential impact: Target rate moving toward 3.50%–3.75%

Source: https://fred.stlouisfed.org/series/FEDFUNDS

The Fed’s challenge is balancing slowing economic momentum with re-anchoring inflation expectations. Equity markets have been supported by the belief that the Fed will deliver at least one more cut before year-end.

However, high rate-cut expectations also create fragility. If the cut does not materialise or is delayed, risk assets may experience a sharp repricing.

Source: https://www.bls.gov/cpi/

This chart highlights the year‑on‑year trend in headline CPI and Core CPI. The significance lies in the Fed’s policy reaction function: stable or falling inflation increases the probability of rate cuts, reduces bond market volatility, and influences equity sector performance. With both CPI and Core CPI hovering around 3%, markets remain highly sensitive to inflation surprises that could shift the December rate‑cut probabilities.

Seasonality: Santa Claus Rally vs. Volatility
Historically, Q4 is favourable for equities due to year-end inflows, tax planning, and seasonal optimism.

But this year:

• Global PMIs are mixed
• Bond yields remain volatile
• Liquidity has tightened
• Political risk (U.S. shutdown) added noise

While a Santa Rally is possible, the path will likely be choppy, especially in risk-sensitive sectors.

2. Equities: Magnificent Seven, AI Mania & Defensive Rotation

Concentration at Extremes
The Magnificent Seven now account for nearly 40% of the S&P 500, one of the highest concentration levels in market history. These mega-caps have driven most of the index’s performance since April’s pullback.

This creates a two-speed market:

• Mega-cap AI leaders show resilient earnings, strong cash flows, and pricing power.
• Mid & small-caps, especially those trading on “AI hype,” face much sharper volatility./li>

Source: Google

Is This an AI Bubble?
Today’s AI valuations are stretched, but unlike the 2000 dot-com bubble, big tech companies generate real earnings. The risk lies not in collapse, but in future earnings failing to justify the massive capex (capital expenditure) cycle. Companies with weak fundamentals but AI-driven PR are the ones most vulnerable to sharp corrections.

Market considerations:

• Quality AI is fine. Hype AI is dangerous.
• Defensive rotation is already underway
• Profit-taking is emerging in big-tech positions
• Allocations to defensive sectors are increasing
• Inflows into fixed income, T-bills, and cash-like products are accelerating
• Hedge funds are lowering net exposure

3. Crypto: Bitcoin’s Reversal Signals Risk-Off

Bitcoin reached an all-time high above $124,000 earlier this year. But the recent reversal has been violent:

• Pulled back below $100,000
• Testing major support around the low $100K zone
• Volatility spiking due to leveraged long unwinds
• Profit-taking becoming widespread

This pullback mirrors broader risk-off sentiment across high-beta assets.

Source: Google

4. Volatility: VIX Reawakens

The VIX Index has climbed from its summer lows, reflecting increased hedging demand.
When VIX spikes:

• Equity indexes typically decline
• Correlations increase
• Liquidity thins
• Momentum reversals intensify

Source: Google

5. Politics: The Longest U.S. Government Shutdown Ends

The U.S. just ended its longest government shutdown in history (43 days). Delayed economic data and political dysfunction add risk premia to markets.

6. Fixed Income: A Better Safety Net into Q4

Fixed income remains attractive as yields stabilize and the probability of rate cuts increases.

7. Portfolio Strategy: What Investors Should Do Now

• Trim winners
• Increase defensive exposure
• Rebalance into quality
• Hold some cash
• Reduce leverage
• Prioritise risk management

Caution Into Year-End

Markets remain sensitive to AI narratives, macro data, and political risk. Defensive positioning and disciplined portfolio management will be key heading into 2026.

Commentary by Warren Poon at AIX Investment Group

Disclaimer: The above market analysis/information is recreated for information and knowledge purposes only under personal capacity, however it does not constitute any liability or obligation upon the readers or the firm to take investment decisions.