Black Friday sale has come early for the stock market

The stock market needed this correction to refuel the advance and wash out the speculators. Fundamentals remain strong and on target with our longer-term view of a climb toward 8,600 by late 2027. We are sticking with our substantial equity overweight and have added further to growth stocks on this correction.

Key points:

1. Correction long overdue. This has been one of the longest (more than seven months) S&P 500 advances without a 10% correction, so this pullback has been long overdue. As investors seek a narrative for why, sometimes the simplest explanation, something I learned from an old market sage over 40 years ago, is the best: “There were more sellers than buyers.” And once the selling started, the machine algorithms took over and the frothiest of instruments (think Bitcoin) had no buyers. Many of these names have now pulled back 20-40%.
2. Selling has been triggered by good news, not bad news. Interestingly, the correction came on “good news,” a solid earnings season that ended climactically with Nvidia’s big beat and raise. When that happens, it is usually a sign of a technical issue, not a fundamental one. Earnings in Q3 came in well ahead of raised expectations, up 13.1% year-over-year. And importantly, based on the releases, analysts raised their numbers for full-year 2025 and for 2026. The latter is now at $307, closing in on our ahead-of-consensus forecast of $320 for next year.
3. The Federal Reserve remains in a rate cutting cycle. The rally off the lows on Friday came with the news that Fed governor John Williams, a close ally of Chair Jerome Powell, sees a December cut as very much on the table given the softness in the labor market and the news on inflation coming in not as bad as expected. No surprise to us, as we continue to see rates heading to 3.0%. This will not matter much to the asset-light “new economy” names that have been leading the market, but will for sure help the older economy sectors of the market, such as housing and regional banks, that are more rate-sensitive.
4. The trade wars are coming to an end. With the China truce accomplished in Korea last month, tariff news is no longer dominating the news cycle. And the actual impact of the core 10-15% tariffs we have ended up with has proven to be less negative than the bears anticipated. Importantly, with the trade wars ending, investment decisions which have been on hold will now be accelerated.
5. Fiscal policy likely to turn stimulative in 2026. The accelerated depreciation schedules in the Big Beautiful Bill will be starting next year, and should spur a new investment cycle along with the foreign investments promised in the trade negotiations. In addition, outsized rebate checks to many taxpayers will be forthcoming in April, along with likely additional stimulus from the Republicans directed at midterm voters who are feeling pinched.
6. Valuations are now more attractive again. Although the S&P overall has only corrected 5%, many stocks within it have corrected more deeply and in that sense, have given us the 10% pullback we were hoping for. This reinforces our overall value case for the market, with more cyclical names such as regional banks trading now at only high single digits, transports in low teens, and even large-cap pharma names (which have held up well) only trading at mid-teen multiples.

No one knows whether the present correction has fully run its course or not. That said, our conviction on the next 12 to 24 months remains strong and, if anything, has been reinforced by the recent evidence, which is fully in line with our optimistic outlook. In our view, growth stocks are now on sale and Black Friday has come early. Happy Thanksgiving!

Read more about our views and positioning at Capital Markets