Issue #35 - Markets Turn Cautious: AI Sell-Offs, Shutdown Shocks, and Rate-Cut Hopes

What’s in this issue;

Global markets entered risk-off mode this week as growth fears, tech valuation jitters, and political gridlock rattled sentiment. Nearly $1 trillion was erased from major AI stocks after Michael Burry’s short bets reignited concerns about overheated valuations.

The record-long U.S. government shutdown is now dragging on GDP and consumer confidence, while the Bank of England signaled inflation may have peaked — opening the door to rate cuts. In this issue, we break down what’s driving the pullback, how to position defensively, and where selective opportunities may emerge as investors brace for a turbulent November.

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Weekly Movement - Heatmaps

Global equities ended the week on a cautious note as renewed macroeconomic worries weighed on sentiment. In the U.S., major indices finished mixed, with investors balancing solid corporate earnings against mounting concerns over slowing global growth and persistent inflation pressures. In Europe, stocks declined broadly, dragged down by weakness in cyclical sectors and fresh signs of economic fragility across the eurozone.

Meanwhile, London markets followed suit, with the FTSE 100 slipping as property group Rightmove and airline IAG led losses amid concerns over consumer demand and higher operating costs. For investors, the week underscored a return to risk aversion, with market participants trimming exposure to growth-sensitive assets while awaiting clearer signals on central bank policy and global growth momentum.

What This Means for Investors

What is Moving the Markets This Week

Looking Ahead: After a choppy week and limited data due to the U.S. government shutdown, markets will shift focus to upcoming earnings and fresh Fed commentary for clues on whether the rally can regain momentum.

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Top Economic News This Week

📊 Economic Deep Dive: Key Data and Metrics

Market Pullback and AI Valuation Concerns

The key data points from the US tech sell-off are stark:

Valuation Loss: Almost $1 trillion was erased from the market value of Wall Street's largest technology companies this week, led by the "Magnificent Seven" (Nvidia, Tesla, Alphabet, Amazon, Meta, Microsoft, and Apple).

Nvidia Loss: Nvidia, a major leader in the AI sector, shed nearly $500 billion in market value this week alone, despite having briefly become the world's first $5 trillion company last month.

Index Performance: The Nasdaq Composite, the tech-heavy index, is heading for its worst weekly performance since April, reflecting a loss of confidence that the rapid AI investment growth is fully justified by immediate underlying profits.

Underlying Concern: The sell-off reflects mounting investor skepticism over whether the ambitious AI spending plans and lofty valuations are sustainable, especially amid rising corporate debt and broader economic uncertainty.

US Government Shutdown Becomes Longest on Record

The economic cost of the record-long US government shutdown is now being quantified:

GDP Impact: The Congressional Budget Office (CBO) estimates that the shutdown has already reduced fourth-quarter real GDP by $18 billion below what it would have been. This translates to a one-percentage point reduction in the annualised quarterly growth rate.

If the shutdown were to last eight weeks, the reduction could reach $39 billion (a two-percentage point reduction). Crucially, the CBO forecasts that $7–$14 billion of that lost GDP will be a permanent loss that cannot be recovered even after the government reopens.

Consumer Sentiment: The University of Michigan Consumer Sentiment Index for November plunged to 50.4, down 6.2% from the previous month. This marks the second-lowest level on record (just above the June 2022 low), driven by widespread pessimism over the economic consequences of the prolonged shutdown.

Disruptions: The direct impact includes the disruption of federal services, the loss of income for hundreds of thousands of federal employees and contractors, and critical operational failures, such as the flight delays and reductions ordered by the FAA.

Bank of England Signals Peak Inflation and Opens Door to Rate Cut

The Bank of England's Monetary Policy Committee (MPC) meeting provided clearer guidance on the future path of UK monetary policy.

Interest Rate Decision: The MPC voted by a 5-4 majority to maintain the Bank Rate at 4%. The vote was very close, as four members voted to cut the rate by 0.25 percentage points to 3.75%.

Inflation Forecast: The Bank officially signaled that UK inflation has likely peaked at 3.8% (below its previous 4% forecast). The BoE now projects that Consumer Price Index (CPI) inflation will fall to around 3% early next year and gradually return to the 2% target over the subsequent year (2027).

Policy Stance Shift: The MPC's official summary noted that the "risk from greater inflation persistence has become less pronounced recently, and the risk to medium-term inflation from weaker demand more apparent, such that overall the risks are now more balanced." This change in risk assessment is what opens the door for a potential rate cut, possibly as soon as December, if data (especially on wage growth) continues to soften.

Things I’m Paying Attention To

Meta’s Hunt for Its “iPhone Moment”

Meta Platforms continues its ambitious quest for a breakthrough that could redefine the company—what tech observers are calling its potential “iPhone moment.” The idea is simple but high-stakes: create a product, platform, or ecosystem that fundamentally changes user behavior and establishes a new growth engine.

Right now, Meta is placing its bets on AR/VR, AI, and new hardware experiences. Success could transform how consumers interact with its apps, attract developers, and open new revenue streams beyond advertising. But the risks are equally high—failure could strain investor confidence, burn cash, and invite fresh regulatory scrutiny.

Why it matters:

What we’re watching:

Meta’s push may define the next chapter in social, AI, and immersive tech. We’re keeping a close eye on whether it can truly pull off an “iPhone moment” or if this will be another high-profile gamble.

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Emerging Markets

📈 Major Opportunities and Trends

Decoupling and Differentiation Among EMs

There is a notable trend of decoupling in capital flows, with investors becoming more selective:

China vs. "Rest of EM" (RoEM): Flows to China have been relatively weak since the pandemic, while flows to other emerging markets have been strong. This suggests investors are differentiating and seeking opportunities outside of China.

Geographic Shifts: India, Taiwan, and other markets in Southeast Asia (like the Philippines and Indonesia) are frequently highlighted as having strong growth forecasts and are attracting significant attention.

Strong Growth and Demographics

Many emerging economies are forecasted to outpace developed markets in real GDP growth, driven by fundamental factors:

High Growth Projections: Countries like India (with its low domestic investor participation suggesting significant room for growth), the Philippines, Saudi Arabia, and Indonesia have strong growth forecasts for the near future.

Favourable Demographics: Younger, growing populations and expanding middle classes are driving consumer demand and providing a strong, tech-savvy workforce.

Innovation and Decarbonisation

Emerging markets are becoming centers for global innovation, especially in:

Technology: EM companies are leaders in areas like e-commerce, fintech, semiconductors (e.g., Taiwan Semiconductor Manufacturing Co. - TSMC), and AI.

Energy Transition: Emerging markets are now critical testing grounds for climate solutions. Renewable energy and sustainable infrastructure projects are gaining momentum, particularly in parts of Asia and Sub-Saharan Africa.

⚠️ Key Risks and Challenges

Geopolitical and Political Instability

Political factors remain the most significant source of volatility in emerging markets.

Policy Uncertainty: Elections and changes in government can lead to abrupt shifts in economic and regulatory policies, which directly impact asset prices.

Geopolitical Tensions: Ongoing global conflicts, trade tensions (including new tariff policies), and friction between major powers (especially US-China) can disrupt supply chains and capital flows. The high geopolitical risk associated with key players like TSMC, due to its location, is a clear example.

Higher-for-Longer Interest Rates

Persistent inflationary pressures globally may lead to central banks in developed markets keeping interest rates higher for longer.

Capital Outflows: Higher yields in developed markets (like the US) can draw capital away from riskier emerging markets.

Debt Vulnerabilities: This environment makes borrowing more expensive, raising concerns about fiscal sustainability and debt distress, especially in lower-income emerging economies.

Market Volatility and Regulatory Environment

Emerging markets are inherently more volatile than developed markets:

Currency Fluctuations: These markets are prone to unpredictable and sharp currency swings.

Regulatory Risk: Less mature financial and regulatory systems can increase the risk of governance issues or unexpected government intervention (e.g., past regulatory scrutiny on Chinese tech firms).

🎯 What to Watch For

Monetary Policy in Developed Markets: Closely track the US Federal Reserve's rate decisions, as they have an outsized impact on global capital flows to EMs.

India's Equity Performance: Monitor whether strong domestic growth continues to justify what some analysts perceive as high valuations, or if the market experiences a valuation-driven slowdown.

Capital Flows to RoEM: Watch for the continuation of the trend of capital rotating out of China and into other emerging economies, particularly in Asia.

🔭 Looking Forward: What We Anticipate Next Week

Wall Street enters the new week with earnings season winding down and the U.S. government shutdown still freezing key economic data. With official figures sparse, traders are shifting focus to fund flows and institutional portfolio disclosures for direction.

The spotlight turns to 13F filings, due Friday, Nov. 14, when institutional investors reveal their holdings as of the third quarter’s end. In a data-light environment, those disclosures could offer valuable clues on how the “smart money” has been positioning during recent market highs.

Just 11 S&P 500 companies are left to report, but heavyweights Disney (DIS) and Cisco (CSCO) headline the week. Meanwhile, traders will be watching for progress on shutdown negotiations, with concerns rising over potential Thanksgiving travel disruptions. Prediction market Kalshi now assigns over 50% odds to the shutdown lasting beyond 50 days — the first time that scenario has topped the board.

Lastly, AI-linked stocks will stay in focus after last week’s sharp tech selloff — the Nasdaq Composite (COMP:IND) just logged its worst week since April.

💼 Earnings Highlights

🗓 Monday, Nov 10 — CoreWeave (CRWV), Occidental (OXY), eToro (ETOR), Plug Power (PLUG)

🗓 Tuesday, Nov 11 — Oklo (OKLO), Nexgel (NXGL)

🗓 Wednesday, Nov 12 — Cisco (CSCO), Flutter Entertainment (FLUT), Rumble (RUM)

🗓 Thursday, Nov 13 — Walt Disney (DIS), Applied Materials (AMAT), Newsmax (NMAX)

🗓 Friday, Nov 14 — Quantum (QUBT), AmpliTech (AMPG), Data Storage (DTST)

Other notable names reporting this week:

🌍 Key Economic Events

Tuesday

🇦🇺 Westpac Consumer Confidence ⬆️ Forecast: 2.8% | Previous: -3.5%

➡️ Stronger sentiment supports household spending and soft-landing optimism.

🇬🇧 Unemployment Rate ⬆️ Forecast: 4.8% | Previous: 4.7%

➡️ A softer labor market keeps rate-cut expectations alive.

Thursday

🇬🇧 GDP Growth Rate YoY (Preliminary) ⬇️ Forecast: 1.3% | Previous: 1.4%

➡️ Slower growth could nudge the Bank of England toward a more dovish stance.

Friday

🇨🇳 Industrial Production ⬇️ Forecast: 5.8% | Previous: 6.5%

➡️ Weaker factory output hints at cooling global demand, weighing on commodities.

🇨🇳 Retail Sales YoY ⬇️ Forecast: 2.2% | Previous: 3.0%

➡️ Sluggish consumer activity adds to concerns over China’s uneven recovery.

🧭 The Week Ahead

With economic data on hold, markets will take their cues from earnings, 13F filings, and Fed commentary.

Investors are looking for signs of resilience amid mixed tech sentiment and macro uncertainty — and for now, positioning intelligence may matter more than fresh data.

ICYMI

U.S. Government Shutdown Hits Day 34 Milestone: The standoff became the second-longest in history, with the Trump administration announcing it would use contingency funds to cover only half of regular SNAP (food stamps) benefits for millions, sparking outrage over potential hunger crises. Negotiations stalled further as Democrats pushed for full funding amid election buzz.

Democrats Deliver Historic Election Wins: Off-year races saw big blue victories, including Abigail Spanberger’s gubernatorial win in Virginia (focusing on economic concerns) and Zohran Mamdani’s upset in New York City’s mayoral contest. These gains in VA, NJ, and NYC signal momentum heading into 2026 midterms, dealing a blow to Trump’s agenda. Exit polls highlighted cost-of-living as the top voter issue.

Trump’s Rough Week: Setbacks Pile Up: The president faced ballot box losses, a Supreme Court rebuke on immigration policies, and congressional blocks on spending bills. Sources close to Nancy Pelosi indicate she’ll announce she’s not seeking reelection, adding to GOP disarray. Trump also threatened military action against Nigeria over trade disputes and probed meatpackers for price-fixing.

Intel Confirmation on Nuclear Threats: CIA Director and Senate Intelligence Chairman backed Trump’s claims of covert Russian and Chinese nuclear tests, escalating global tensions and prompting calls for renewed arms talks.

Deadly 6.3 Earthquake Rocks Afghanistan: A tremor near Mazar-e-Sharif in Balkh province killed at least 20 and injured hundreds, with aid teams reporting less widespread destruction than feared but ongoing aftershocks complicating rescues.

India Road Tragedy Claims 19 Lives: A gravel truck collided head-on with a bus in Telangana, killing 19 including a three-month-old girl; the crash highlighted poor road safety in rural areas.

Other Global Disasters: Flooding along the Senegal and Niger Rivers displaced thousands in West Africa; wildfires scorched over 1,000 acres in California and the West; a train derailment in India’s Chhattisgarh killed 11; and Sudan’s famine crisis worsened, deemed the world’s largest humanitarian emergency. Pacific typhoon season raged on, with Hurricane Melissa’s remnants causing flash floods.

Sports Roundup: NFL’s Chicago Bears edged the Bengals in a high-scoring thriller, improving to 5-3; NBA tipped off with Lakers dominating Portland; college hoops returned featuring No. 3 Florida’s clash with No. 13 Arizona; and MLB’s Arizona Fall League held its All-Star Game.

Quick Hits: Israeli military’s ex-top lawyer arrested for leaking video of Palestinian detainee abuse; former Kansas Senate President Steve Morris dies at 79; U.S. Army vet indicted for allegedly spying for Russia at Fort Riley; activist Shifa-ur-Rehman denied bail in Delhi riots UAPA case.

Useful Links (Any Interesting Stories)

PBS News Hour: Shutdown and SNAP Impacts (Nov 3) – In-depth on food aid cuts.

ABC News: Election Key Takeaways – Breakdown of Democratic sweeps.

NYT The Daily: Trump’s Bad Week – Podcast on political stumbles.

UN News: Afghanistan Quake Response – Aid updates from the ground.

The Hindu: India Accident Coverage – Details on Telangana crash.

Yahoo Sports: Bears’ Wild Win – NFL highlights.

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