Hi, everyone. I'm Liz Ann Sonders, and this is the November Market Snapshot.
Notwithstanding that the major US equity indexes are sitting on healthy double-digit gains heading into the final two months of 2026, the calm at the index level belies a lot of churn and rotation underneath.
Average index members have suffered drawdowns two to nearly four times larger than their parent indexes, stock level correlations are at or near the lowest readings in more than a decade, and sector leadership has been flipping month to month. At the same time, earnings and forward estimates have been moving up rather than down, which is not the norm.
In short, this has been a market of stocks, rather than a stock market. So let's walk through the data on drawdowns, breadth, correlations, rotations, earnings revisions, and economic growth, and what it all might mean for investors.
[Table for "Drawdowns more severe at constituent level" showing price performance and maximum drawdowns for S&P 500, NASDAQ and Russell 2000 is displayed]
So the S&P 500 is up 11% year-to-date, with a maximum drawdown of only 9%. That's less than a correction level decline. However, the average member of the index has suffered a maximum drawdown of negative 27%. And the story is similar across the board for other equity indexes, but it's most extreme for the tech-heavy NASDAQ, where the index's maximum drawdown of negative 13% was swamped by the average members' whopping negative 49% drawdown.
Now, the gap between index and member drawdowns is a tell. The capitalization-weighted indexes have been held aloft by whichever group or sector has been leading at the time, while a large share of individual stocks have gone through what has amounted to their own bear markets. Index level returns tell very little about the experience of the typical stock or of an investor who owns a concentrated handful of them.
[High/low line chart for "Stocks marching to beat of individual drummers" showing S&P 500 rolling 3-month correlation is displayed]
Now, the rolling three-month correlation among S&P 500 members has fallen to almost zero, which is near the bottom of its range going back to 2011. Stocks are trading on their own fundamentals and narratives, rather than moving together as a herd.
For context, correlations tend to spike during periods of macro stress when everything gets sold at once. That happened in the 2011 debt ceiling and Eurozone crisis episode, the 2020 pandemic crash, the 2022 inflation spike and bear market, and the spring of 2025's tariff shock. Each spike, though, was followed by a long grind lower.
And the trend since 2023 has been decidedly downward. Low correlation is a double-edged sword. It arguably reflects a market not gripped by fear, and one that rewards security selection. But it also means diversification across a few big names is not doing the work investors might assume based on history. It's also suggestive of a backdrop where index stability can coexist with sharp swings in individual stocks.
[High/low line chart for "Index one way, stocks another" showing S&P 500 stocks with negative 6-month beta is displayed]
Another example of this phenomenon is the fact that a record share of the S&P 500 has been trading with a negative six-month beta, meaning the stocks have been moving in the opposite direction of the index.
[High/low chart for "Less market halitosis" for % of S&P 500 members outperforming S&P 500 Index over the past month is displayed]
The share of S&P 500 members outperforming the index over the trailing one month has recently surged to more than 70% from only 17% a few weeks ago. The latest reading is near the top of the range seen since 2022.
What stands out about this year, 2026, is the amplitude of the swings. The measure fell to about 15% in the spring, jumped to about 67% in the summer, collapsed back below 20% in early fall, and has now spiked again. These whipsaws are the breadth equivalent of the low correlation backdrop. Leadership is rotating rapidly rather than settling into a durable trend.
[High/low bar chart for "Energy and tech diverged significantly" showing correlation between top two performing sectors during calendar years is displayed]
Perhaps the most striking illustration of this year's dispersion, as of October 28th, when Energy and Tech were the two best performers at the sector level within the S&P 500, the correlation between them was negative. That is the first negative reading in Ned Davis Research's data going back to at least 1973.
Now, the Health Care sector has recently leapfrogged tech to move into the second spot, so history may be less of a guide. However, historically the year's two leading sectors tended to move together as they were usually riding similar macro waves. This year, Energy and Tech have effectively been taking turns, which shows that leadership has not come from a single theme. And by the way, that goes for Health Care too, now in the number two spot. This is a meaningful departure from the narrow momentum macro-driven leadership of recent years.
[Table for "Riding an upward 3Q26 earnings estimate wave" showing year/year estimated earnings growth for 3Q26 for S&P 500 index and sectors is displayed]
We're also in the throes of third quarter earnings season, and so far so good, although not without bumps along the way. The estimated year-over-year earnings growth rate for the S&P 500 in the third quarter now sits at 32%, up from less than 28% at the start of July. That four-point increase runs against the typical pattern in which analysts tend to trim estimates as a quarter unfolds, allowing companies to beat a lower bar.
The largest earnings upgrades have been to the Energy, Industrials, and Financial sectors, while the largest downgrades have been to the Communication Services, Materials, and Health Care sectors. The Communication Services cut lines up with that sector's October drubbing in price. Technology is a more interesting case. Estimates were raised by more than 10 points, even as the sector fell nearly 7% in October, suggesting at least part of the recent weakness is about positioning and valuation, rather than fundamentals.
[Table for "Riding an upward FY26 earnings estimate wave" showing year/year estimated earnings growth for 2026 for S&P 500 index and sectors is displayed]
For calendar year 2026, estimated S&P 500 earnings growth has jumped to 36% from less than 27% on July 1st, an upward revision of nearly 10 points in four months. Ten out of 11 sectors have seen estimates rise or hold steady.
Energy again leads the full year growth expectation, followed by Communication Services and Consumer Discretionary. Health Care is the lone sector with a cut. Two disconnects are worth flagging. Communication Services full-year estimates are up 23 points, yet third quarter estimates were slashed by 33 percentage points, and the sector is down more than 7% over the past year.
So the full-year number appears to be leaning on results outside of the third quarter while the market appears skeptical of its durability. Health Care has the weakest expected 2026 earnings growth of the 11 sectors, yet it is the second-best performer over the past year--the gain likely coming from multiple expansion and defensive demand, otherwise thought of as risk-off demand.
[High/low line chart for "Profitability reigns this year" showing cumulative year-to-date price performance for Russell 2000 profitable and non-profitable companies is displayed]
Now, in an environment where dispersion at the sector level is partly driven by widening earnings outlooks, an interesting divide has opened up within the Russell 2000 Index of small cap stocks. Unlike last year when non-profitable small caps outperformed profitable ones by nearly two to one, this year it's more than just the opposite story. Profitable stocks are up more than 20% year-to-date, which by the way, is handily outperforming the S&P 500, while non-profitable stocks were up only about 3%. This is consistent with the member-level drawdown data. The Russell 2000's average member has suffered a maximum drawdown of 39% this year, with the damage concentrated in the lower-quality, less profitable, more speculative end of the index.
[List of "Takeaways" is displayed]
The headline indexes paint a picture of steady, comfortable gains this year, but underneath it has been anything but. We've had deep drawdowns for the average stock, near record low correlations, whipsawing breadth, whipsawing and rotating sector leadership. Supporting it all is an earnings backdrop that has improved meaningfully since mid-year, although the gains are unevenly distributed across sectors.
In sum for investors, there are a few important implications. Don't judge your portfolio or the market by cap-weighted indexes. Diversification and rebalancing are especially important right now. Favor profitability and quality, especially if looking for opportunities in small-caps.
Thanks for tuning in, and I'll be back next month.
[Disclosures and Definitions are displayed]