Weekly market wrap

An end to the U.S. government shutdown, a start to a stock market rotation?

Key Takeaways:

• The 43-day U.S. shutdown concluded with a funding bill extending operations through January 30, 2026. Federal workers will receive backpay, and critical programs like SNAP are restored.
• The shutdown is estimated to reduce fourth-quarter 2025 economic growth by 1.5 percentage points, lowering projections to 1.0%-1.5%. Nonetheless, we expect a gradual recovery in the first quarter and through 2026.
• Rotation underway? Technology and AI sectors are underperforming in November after a strong rally since April. Mega-cap tech companies look to be facing challenges from rising debt levels and a shift to asset-heavy business models, potentially impacting margins and free cash flow.
• We believe diversification matters in this backdrop, and we see opportunities in U.S. large-cap and mid-cap stocks, the health care and industrials sectors, and emerging-market equities, to balance technology exposure.

The U.S. government shutdown ends: What are the implications?

After 43 days, the longest U.S. government shutdown came to an end on November 14 as the White House signed a Congressional bill to fund the government through January 30, 2026. What are the key implications?

• First, the end of the shutdown means that the roughly 1.4 million federal workers who have gone without pay, about half of whom were furloughed, are eligible for backpay. Most of these paychecks should be distributed by Wednesday, November 19. The Congressional bill to end the shutdown also reverses the layoffs of the more than 4,000 federal workers who lost their jobs at agencies including the Department of Commerce, Education, and Homeland Security. The bill also prevents any more layoffs until at least the end of January.
   
• Second, the Congressional bill mandated the restarting of critical federal programs. This includes the restoration of programs like SNAP (Supplemental Nutrition Assistance Program), which is funded through September 2026, although the full resumption of payments may vary by state. Similarly, airlines will likely ramp back up to their full capacity in the coming days, after air traffic had been reduced at 40 of the country's busiest airports last week. Airlines should be back at capacity ahead of the U.S. Thanksgiving holiday.
   
• In addition, U.S. economic data that was halted during the shutdown could resume in the weeks ahead, albeit some data may be murky still. For example, the U.S. nonfarm-jobs report for October is expected to be released next week, and while it will include total jobs added, the report will not include the unemployment rate, as the household survey was not completed.* The BLS (Bureau of Labor Statistics) is expected to release a full schedule of its economic data releases in the days ahead, which should include dates for critical inflation and labor-market data.*
   
• Finally, while Congress was able to pass a funding bill through the end of January, the question around health care premiums remains outstanding. The Affordable Care Act (ACA) health care premiums are expected to rise after December 31, 2025, as subsidies expire for most of the 24 million people enrolled in the marketplace.* As part of the U.S. government reopening, the Senate will schedule a vote by mid-December to extend the ACA subsidies for three years, although there is no guarantee of this passing in both the Senate and the House. If no deal is reached, health care costs will likely increase, and the chances of a repeat shutdown after January next year likely rise once again.

Our take: Overall, in our view, while it was a positive that the U.S. government resumed operations last week, the shutdown will likely cause some damage to fourth-quarter economic growth. The Congressional Budget Office (CBO) estimated that the shutdown could reduce U.S. real GDP growth by about 1.5% percentage points in the fourth quarter of 2025. Prior to the shutdown, Bloomberg estimates indicated the U.S. economy was on pace to grow around 2.5% to 3.0%, which will likely come down to the 1.0% to 1.5% range. However, we would expect a recovery in the first quarter next year, albeit perhaps a slower rebound as operations gradually resume and federal workers are given backpay, although many households may face higher health care costs.

Stock market rotation: The AI and technology sectors continue to come under pressure 

As the U.S. government shutdown comes to an end, investors last week were seemingly rattled by a rotation in stock markets: The darlings of the technology and AI sectors, which have driven much of the market gains and earnings growth this year, look to be showing signs of fatigue. For the month of November thus far, technology has underperformed, while sectors like health care, energy and materials have outperformed. 

In our view, after a nearly 55% rally in the Nasdaq since the April 8 lows,* the technology sector may have been due for a period of consolidation or some profit-taking. We believe this is especially true as we head toward year-end and investors think about rebalancing portfolios and positioning for 2026. 

In addition to elevated expectations and some extended valuations,* the mega-cap technology companies appear to have also undergone notable shifts in their operating models:

1. Shifting capital structures: Mega-cap technology companies have historically been cash-rich but are now starting to issue more debt to finance AI capital-expenditure spending.* We think this trend is particularly worrisome in a more debt-burdened company like Oracle, but we are also seeing rising debt levels in companies like Meta and Google.
   
   This comes at a time when there looks to be rising concerns that the Federal Reserve may not cut rates at its December meeting, which would leave interest rates elevated. In fact, the probability of a rate cut at the next FOMC meeting has now fallen to about 51%, down from 95% just last month.

2. Shifting business models: The mega-cap tech companies have also gone from being notoriously asset-light to more asset-heavy, as the investment in data centers and AI infrastructure could reach upwards of $500 billion next year.* Over time, this may weigh on the margins and free cash flows of these companies. 

Our take: Overall, we believe that these shifting trends in the mega-cap technology space are worth monitoring. However, we continue to see the underlying fundamentals of the AI story remain intact: These companies have delivered on both earnings growth and guidance and continue to reiterate optimism on capital-expenditure spending plans.* Nonetheless, expectations and valuations were elevated heading into earnings season,* and after a powerful rally since April, we believe a reset for this sector could be healthy.

Historically, the factors that end a bull market tend to be a Fed that is raising rates aggressively (this was the case in the dot-com boom of the late 1990s), or an economy that is entering a recession.* We don't see either of these on the horizon, for now, which gives us some comfort that a pullback may not turn into something more deep or prolonged.

However, we continue to believe that diversification matters in this backdrop. If your portfolio has become too heavily skewed toward equities or technology sectors after a three-year bull market, we recommend considering rebalancing portfolios to align with your intended allocations. And if you are putting new money to work, we would favor parts of the market that we think have the scope for some catch-up and for some valuation expansion. We recommend both U.S. large-cap and mid-cap stocks, sectors like health care and industrials, and emerging-market equities, to complement your technology and AI exposure. For our full views on global diversification, please see the latest Monthly International Market Focus.

Weekly market stats

^{Source: Factset, (11/14/2025). Bonds represented by the iShares Core U.S. Aggregate Bond ETF. Past performance does not guarantee future results. *Morningstar Direct (11/16/2025)}

^{*Source: FactSet}

The week ahead

Important economic data for the week ahead include housing, PMI and sentiment data. Government data that were impacted by the government shutdown are expected to gradually resume over the coming weeks, now that the shutdown has ended.

Review last week's weekly market update.