Stocks appeared set to wipe out several weeks’ worth of gains to kick off November.

The Thanksgiving-themed month has generally been one of the best months for stocks, with the S&P 500 averaging about a 1% gain dating back to 1927. While November is one of the most bullish months from a historical perspective, I don’t think any of us could argue that stocks have been due for a breather for some time following the relentless rally off the April lows.

Of course, we can’t base our decision-making solely around seasonality. This speaks to the dynamic nature of the stock market.

The truth is that even if this pullback morphs into a correction of about 10% off the October highs, the broader uptrend would remain intact. An official correction would also put the S&P 500 near major support levels. In other words, don’t get thrown by the financial media in the coming days if this pullback worsens.

Remember that no one has a crystal ball. Our aim is to identify major trends and profit by them, while remaining aware of risk levels and keeping profits once the tide inevitably turns.

Earnings Remain Supportive of Bull Market

The last week has been a good time to take partial profits and perhaps even hedge long positions. But there are simply too many tailwinds to consider drastic changes to portfolio allocations at this point in time. Earnings are stellar, GDP growth has been solid, and the Fed has resumed the easing process.

And more than that, we just broke out to all-time highs earlier this year following a deep correction (in the S&P 500) and a bear market (in the Nasdaq). We can’t allow fear of a deeper correction to harm our long-term returns by letting short-term concerns work their way into our process.

The latest bearish headlines point to hefty AI valuations. Sure, valuations for certain individual stocks reached heightened levels recently. The important takeaway is that earnings continue to support the somewhat lofty valuations.

History has shown us countless times that valuations are an absolutely terrible timing tool. In the long run, they matter. Markets eventually revert to the mean.

But in between – and for periods that can last years, even decades – there’s a lot of money to be made. Making decisions merely based on valuations leaves a lot of that money on the table.

The third-quarter earnings season continues to portray a theme of corporate resilience. We’ve received results from 389 S&P 500 (SPY Quick QuoteSPY - Free Report) members so far, with total earnings up 14.6% from the same period last year on 8.3% higher revenues. More than 83% of the companies that have reported beat EPS estimates, while better than 75% beat revenue estimates. These are impressive numbers to say the least.

The expectation in Q3 (including the companies yet to report) is for earnings growth of 13.8% on 8.1% revenue growth. We can also see what is currently expected for the next three quarters.

Image Source: Zacks Investment Research

Economic Data Sends Mixed Signals

Fed officials remain divided over another interest rate cut in December. Stephen Miran – who is the Fed’s newest voting member – voiced his opinion that the Fed should cut again at its next meeting in December. Market participants are currently pricing in a roughly 70% chance of further easing next month. But Cleveland Fed President Beth Hammack said she “remained concerned” about inflation and believes policy should remain restrictive.

Earlier this week, the latest ADP report showed private-sector employment increased by 42,000 last month, ahead of expectations following two months of declines. But a report from global outplacement firm Challenger, Gray & Christmas showed last month was the worst October for layoffs since 2003. The more widely followed US employment report has been delayed due to the ongoing government shutdown.

The Supreme Court heard arguments this week surrounding the legality of Trump’s global tariffs. We likely won’t hear a final decision until early next year. Treasury Secretary Scott Bessent stated he was “very optimistic” after the high court arguments, but also offered that the U.S. has “lots” of options to implement tariffs if the administration loses the case.

Final Thoughts

We’re seeing some negative earnings reactions this week, and that was bound to happen after a very positive start to the Q3 season. A pullback was arguably overdue, even if it occurs in the normally bullish month of November.

Pullbacks and corrections allow for a ‘reset’ and can present incredible buying opportunities. Make sure to stay engaged and take advantage of all that we have to offer here at Zacks to uncover leading stocks ahead of the next leg up.