Markets ended November slightly higher, with expectations of a December rate cut. Investors anticipate further interest rate cuts of 75-100 basis points by the end of 2026. However, a Reuters poll shows consensus forecasts of higher economic growth and sticky inflation next year, which could lead to volatility in asset prices.

Investors are reminded that diversification is key to protecting portfolios from extreme investor sentiment. Thoughtful diversification, beyond spreading investments, helps account for various outcomes. As markets trend strongly, diversification can reduce exposure to popular outcomes, potentially causing returns to lag. Valuation guides the required level of diversification in a portfolio.

Alphabet’s stock surged following favorable assessments of Gemini 3 and reports that Meta Platforms plans to use Alphabet’s TPU chips. This news raised concerns about Nvidia’s competitive advantage in AI infrastructure spending. Stock prices for rapidly growing companies typically reflect forecasts of future growth rather than current success.

Heightened expectations of interest rate cuts led to a currency market shift, with the US dollar falling and overseas markets gaining. Developed ex-US markets rose 3.6% in US dollar terms, while Korea and Taiwan saw strong gains. As trading volumes decline towards the end of the year, sharp moves in asset prices are expected, potentially leading to a ‘Santa Rally’ or negative sentiment.

Read more at Morningstar: Markets Brief: Alphabet Gains Ground on Nvidia in AI Spending War