November 19, 2025: AI & Everything Else

Markets have latched onto a powerful narrative: an AI-driven productivity boom promising faster GDP growth and lower inflation. That story is reflected in the factors driving outperformance year-to-date: size, momentum, earnings growth, and upward revisions. Meanwhile, stocks tied to quality, dividends, value, and low volatility have lagged.

The gap between these groups grew so wide that J.P. Morgan recently published “Extreme Factor Divergence and the Potential for Sharp Rotation.” That article proved timely. The past two weeks have produced a reversal with stocks associated with lower volatility outperforming those most affiliated with the AI narrative.

As we have noted before, markets push narratives to extremes, creating conditions for sharp rotations. Add leverage to the mix—both from corporations borrowing to fund AI investments and from retail investors using margin to stay in the game—and volatility risk rises.

The past two weeks offered a helpful reminder on the fragility of seemingly unassailable narratives, a fragility that grows with enthusiasm over the narrative itself.

Weekly Market Update: November 19, 2025