November 7, 2025
Equities are dealing with the latest bout of skepticism around the valuation and inherent promise of AI stocks. We’ve pointed out many times in this space how the bull trend that started in early 2023 was a mega cap. Growth led expansion. We’ve seen over the balance of the past 3 years that leadership has been supported by the “Magnificent 7” and the growing AI ecosystem which has grown to include much of the Mag7 (as hyper-scalers rather than AI pure plays) as well as almost the entire Technology Sector as well as key Industrials and down cap. Mining, Energy and Utilities names.
From a factor perspective managing risk as these trends change is about how much Growth vs. Value exposure a portfolio has. We can see Growth vs. Value performance in the top 1000 US stocks (chart below). Growth stocks have pulled back but remain in the context of an outperformance trend. That said, we can see from Q1 of 2025 that Value performance spiked in the last material correction for equities. While we can’t say for certain equities will have deep correction this time around, we do have high conviction that if equities correct Growth shares will continue to lead stocks lower.
Growth outperformance has correlated with strength in high-beta and momentum factor ETFs. The chart below further underpins the relationship between Value and haven positioning in 2025.
Equities are set to open slightly lower this Friday which is to be expected after a bearish pivot played out this week. Monday we will get a key test for the Growth bull. Will high flying stocks like NVDA and PLTR be defended as aggressively as they have in the past. The PLTR chart (below) has seen price retrace to the 50-day moving average. That has been enough of a discount to get investors to accumulate since the equity lows in April. If price moves lower, we see horizontal support for PLTR at the $148 level.
The bottom line is we are getting close to a key near-term pivot for the AI trade. If investors start next week continuing to take profits in AI leaders, it confirms a deeper corrective path and a brake in the intermediate-term bull trend for equities. We’ve argued for some defensive exposures in the portfolio in the past weeks. This is where the Bull and Bear will show their hands.
Other Data sourced from FactSet Research Systems Inc.
