This month, Stefan Smith, Senior Multi-Asset Investment Analyst at Aurora Capital, shares what’s driving markets, why AI optimism is being reassessed, and how a diversified approach helps smooth the bumps.

Global markets took a breather in November after several strong months. While overall returns were relatively flat, there was quite a bit happening underneath the surface. It’s a timely reminder of why diversification (spreading your investments across assets, sectors and regions) —matters, especially in a market where many assets are already highly priced.

Central Banks and Economic Drivers

New Zealand

The Reserve Bank of New Zealand  lowered the official cash rate by 0.25% to 2.25%. This move is intended to support the economic recovery. Retail sales grew by 1.9% over the quarter, but unemployment also rose to 5.3%.

United States

The US job market showed mixed signals. Unemployment crept up to 4.4%, but job creation was stronger than expected. However, a surprisingly weak consumer confidence report from the Conference Board raised questions about the strength of household spending. These developments increased the likelihood of the US central bank cutting interest rates in December.

Global Market Summary

• Developed market stocks were largely flat, rising just 0.1%in NZD terms.
• One of the month’s key themes was a shift from growth to value, with value stocks (+1.9%) significantly outperforming growth stocks (-1.5%) in NZD terms.
• Defensive sectors such as healthcare and consumer staples fared much better than cyclical sectors and technology.
• Global bond markets were flat at 0.0% in NZD terms, balancing a weaker US labor market with concerns about a higher future supply of bonds.
• In the currency markets, the US Dollar index decreased by 0.3%, while the New Zealand Dollar strengthened slightly against the US Dollar by 0.2%.

Equities: Changing tides

Share markets slowed in November, driven by lingering uncertainty surrounding the US government shutdown, ambiguous economic data, and concerns over high valuations, particularly in the technology sector.

Despite a strong earnings season where 81% of S&P 500 companies beat forecasts, the US market gained just 0.2% in USD terms. Even excellent results from companies like NVIDIA weren’t enough to push markets higher. This points to already-high investor expectations and growing scepticism about whether aggressive growth targets, particularly for the Magnificent Seven can be met. This dynamic led to a sharp reversal of the year’s prior trend.

European markets rose 1.0% in euro terms. Japanese equities rose +1.4%  in yen terms, bolstered by a weaker currency, which benefits exporters. On the downside, the New Zealand market fell by 0.4% in local terms.

Bonds: A mixed picture

Bond markets reflected mixed global signals.

• US bonds performed well, rising 0.6%, as interest rates eased slightly in response to weaker economic data.
• Japanese bonds fell by 1.3% amid rising yields, reflecting concerns about ongoing government spending.
• In New Zealand, the 10-year government bond yield rose from 4.1% to 4.3%.

Our Perspective: Diversification still wins

November’s market rotation was a clear reminder that trends can shift quickly. After months of strong returns from technology and AI-related stocks, investors turned back toward more traditional, stable sectors. That’s why diversification remains central to our approach.  Spreading investments across sectors, styles, and regions helps manage risk and reduce the impact of sudden market changes. High-quality bonds also continue to play an essential role in a well-constructed portfolio. They provide stability if market expectations cool or volatility returns.

As always, we’re  focused on identifying high-quality investments across the market spectrum to protect and grow your money.