Dispersion: A Tale of Two Sectors
Weekly Market Update
Top Three Takeaways
Recent Federal Reserve rhetoric revived expectations for a December interest rate cut. We still believe sticky inflation should remain central to the Fed’s calculus, but updated Consumer Price Index (CPI) data arrives after the Federal Open Market Committee (FOMC) gathers.
Despite subdued sentiment—pressured in part by the longest government shutdown ever—the U.S. consumer remains employed, spending, but increasingly value-conscious. Holiday weekend spending was robust, and same-store sales trends point to steady, healthy demand.
Banks stand out as a bright spot in U.S. equity markets. They continue to outperform alternative asset managers year-to-date supported by improving earnings prospects, solid capital positions, and the potential for meaningful deregulation. These dynamics reinforce our view that fundamentals remain supportive of risk assets into year-end.
This Week in Charts
Looking Closer
Delinquency trends tie together our consumer and financials themes. Low bank credit card delinquencies amid rising overall credit card delinquencies suggest these trends speak more to nonbank underwriting standards and divergence across income cohorts rather than broad-based deterioration in consumer fundamentals.
Market and Data Recap
Inflation and shutdown dampening U.S. consumer confidence.
A dramatic swing in Fed rate-cut expectations drove U.S. equities to their first weekly gain after four straight down weeks. Long-delayed economic data finally hit the tape, and the Fed Funds Futures market now assigns nearly a 100% probability to a quarter-point cut on December 10 following guidance from New York Fed President John Williams. We believe above-target inflation should remain central to the Fed’s ongoing decisions, but the next CPI release date occurring after the FOMC meeting will leave policymakers squarely focused on lackluster hiring for now.
Continued inflation has contributed to the subdued consumer sentiment this year, which took another visible step lower after the longest government shutdown in U.S. history. We see the impact across multiple survey indicators: Conference Board readings—including the share of consumers describing jobs as “plentiful”—and University of Michigan sentiment declined meaningfully from early-year levels. Travel-and-entertainment-geared companies decidedly underperformed the S&P 500 since the summer too as consumers pulled back on discretionary spending. The message from the data: sentiment is depressed but not collapsing.
We have highlighted divergences across income and net-worth cohorts. Net-worth data shows growth for the top 1% and top 20% this year, while the bottom 20% flatlined.1 These dynamics reinforce our belief that the 2025 consumer story hinges on the continued K-shaped dynamics. Record household net-worth and asset prices are supporting the higher-income, asset-owner cohorts, while higher prices stretch lower income cohorts.
Bottom line: Ongoing inflation and the U.S. government shutdown put further pressure on consumer sentiment this year. Under the surface, the post-COVID wealth divide—particularly the faster net-worth growth at the top 20% and 1%—continues to shape the K-shaped consumer experience.
Consumers are still employed and spending but increasingly choiceful.
Despite weakened sentiment, contained weekly jobless claims data shows firing is also subdued. Said another way, the consumer is still employed, which supports ongoing spending. This weekend delivered some of the strongest real-time confirmations of that behavior.
Adobe Analytics reported a 9.1% year-over-year online Black Friday sales growth. Mastercard Spending Pulse showed similar momentum: 10.4% online growth and 1.7% in-store spending gains. Households may not be lining up outside brick-and-mortar retail stores, but they are shopping aggressively online.
Even before the holiday surge, spending held up. The 2025 same-store sale trend shows steady, healthy growth across a broad sample of 9,000 U.S. general merchandise and apparel retailers. While the dataset under-represents online only purchases, we see the signal pushing back against a near-term collapse in consumption.
However, behavior has shifted in favor of value-conscious shopping. Corporate commentary from Walmart, Target, and Best Buy paints a consistent picture: consumers are more selective, more price-sensitive, and more focused on value. Walmart and Target both use the word “choiceful” to describe this disciplined, value-driven consumer mindset.
We see this dynamic and the K-shaped dynamics above as critical for the consumer stock investment outlook, where accelerating spending growth by segment will be harder to find in the near-term. Higher income cohorts may buoy pockets of discretionary spending around travel and leisure, while higher prices may continue to pressure spending growth in staples.
Bottom line: The average consumer is holding up well, and current spending behavior does not resemble a weakening economy—a key data point given consumption’s 70% share of the U.S. economy. The U.S. economy remains on a growth path supportive of risk assets, though investors should remain selective with consumer stocks.
Banks extend their lead as deregulation momentum builds.
2025 has been a strong year for banks. The Keefe, Bruyette & Woods (KBW) Bank Index is up 24% year-to-date, reflecting strong earnings and rising optimism about deregulation. The market sees a meaningful possibility of lower capital requirements, enabling banks to free up capital to increase investment, expand lending, and potentially return more capital to shareholders. Some investors also see room for more M&A activity, particularly among regional banks.
Banks have also materially outperformed other parts of the financial sector, especially alternative asset managers. The divergence accelerated this fall as private-credit concerns rippled through markets. We believe many of these issues appear idiosyncratic—not systemic—but the space bears close monitoring.
Meanwhile, broader credit trends remain stable or improving. Low unemployment, healthy corporate earnings, and solid consumer spending form a strong macro backdrop for credit quality. The connection between healthy consumers and healthy banks is not accidental. These two sectors reinforce each other.
On the earnings front, banks show powerful momentum. Recent months delivered nearly eight earnings upgrades for every downgrade—the highest data point since the Global Financial Crisis outside the post-COVID re-opening—driven by improving net interest margins and strength across fee businesses, including investment banking and trading. Capital ratios remain significantly above regulatory minimums, providing an additional buffer and supporting market confidence. We continue to favor high-quality, large-cap bank stocks going into 2026.
Bottom line: The U.S. banking sector looks healthy, well-capitalized, and increasingly supported by the prospect of deregulation. Combined with a resilient consumer, this creates a constructive macro environment heading into year-end and supports our continued preference for quality risk assets.
1 Bloomberg and Haver Analytics as of November 25, 2025
Bifurcation exists in both the consumer and financial segments of the market. K-shaped dynamics and an increasingly price-sensitive consumer will drive pockets of spending growth and stock performance. In Financials, banks remain our favored exposure on strong fundamentals and deregulatory tailwinds. In both sectors, maintaining a bias towards resilient fundamentals is key in this environment.
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