Market Update & Our Portfolio Positioning (After Market 11/18/25)
Author: Montecito Capital Management
We wanted to share an update on recent market action, especially in light of the past couple of weeks’ volatility. In essence, after hitting recent highs, the market has seen a modest but noticeable pullback: the broad S&P 500 is down about 4%, while the tech-heavy Nasdaq-100 has given back closer to 6%. These aren’t major dislocations, but they reflect a rise in volatility, some profit-taking, and a bit more investor caution entering the market. With that in mind, here’s what’s driving the current environment and how we are positioned.
Over the past couple of weeks, the market’s weakness has been driven primarily by renewed concerns around interest-rate policy, softer economic momentum, and some cooling in mega-cap technology leadership. The tech sector saw the most pronounced pressure, with pockets of AI-related names and high-multiple software stocks giving back recent gains. Beyond technology, consumer discretionary and communication services also experienced meaningful declines, while defensive sectors such as utilities and staples held up comparatively better.
It’s important to recognize that pullbacks of this size are entirely normal. Historically, the stock market experiences a 5% decline multiple times per year on average—going back decades. These shorter-term resets are part of healthy market behavior and often help relieve excesses that build up during strong rallies.
What’s Behind the Recent Pullback
- Tech / AI Valuation Reset
Much of the market weakness has been concentrated in technology, particularly AI-related names. After a strong run, investors are reassessing valuations and trimming positions. Several mega-cap tech companies have experienced increased volatility as expectations reset toward more sustainable growth assumptions. - Macro and Economic Data Concerns
There are signs of a cooling labor market, and data uncertainty has added to broader caution. When economic clarity is limited, markets tend to adopt a more defensive tone until visibility improves. - Sector Rotation
We’re seeing a rotation away from high-growth and high-multiple tech stocks into more stable or defensive sectors like healthcare and certain value-oriented industries. This type of rebalancing is common during periods of elevated uncertainty. - Volatility / Technical Signals
Some key indices have slipped below short-term momentum indicators, which can trigger algorithmic selling and further increases in volatility. The VIX has also moved higher, reflecting greater risk-aversion.
Impact by Sector: Who’s Getting Hit — and Who’s Holding Up
- Tech / AI: Epicenter of the pullback, especially AI infrastructure and semiconductor names.
- Semiconductors: Exposed due to high expectations and elevated valuations.
- Cloud / Software: Also softer as growth assumptions moderate.
- Healthcare: A relative bright spot, benefiting from rotation into defensive areas.
- Defensive / Value: Holding up comparatively well.
- Cyclical & Consumer: Mixed performance, with sensitivity to economic trends.
Historical Context: How “Normal” Is This Type of Pullback?
- The S&P 500 historically experiences three pullbacks of 5–10% per year on average.
- Ninety-four percent of all years since 1928 have included at least one decline of 5% or more.
- Even in positive years, interim drawdowns of this size are common.
- A 4–6% pullback is entirely normal, especially after a period of strong market gains.
Key Takeaways for You
- This appears to be a healthy reset, not a signal of structural deterioration.
- We remain alert but not alarmed. We monitor key indicators daily and differentiate between noise and true macro inflection points.
- Diversification is doing its job. Exposure across sectors and styles helps buffer volatility when one area of the market consolidates.
- Staying long-term focused matters. Historically, markets rebound after moderate pullbacks, and disciplined positioning typically outperforms reactive decision-making.
Our Portfolio Positioning & Outlook
As part of our approach, our diversified multi-asset strategies—including liquid alternatives and low-correlated exposures—are fulfilling their purpose of smoothing volatility and maintaining stability during periods like this. We make portfolio adjustments only when we identify meaningful secular changes, not temporary swings.
Despite recent market fluctuations, the backdrop remains constructive: corporate earnings continue to show resilience, rate-cut probabilities for 2025 and 2026 are trending favorably, and GDP expectations point toward steady, if moderated, economic growth. All of this supports a measured and disciplined investment approach rather than reactive repositioning.