November 23, 2025

My Thoughts on
the Market

Weekly Edition

How did the markets do?

• Stocks had a rough week overall, with the S&P 500 down about 2% and the Nasdaq falling nearly 3%. We saw large swings in all three indices but there was some bounce back on Friday.
• Bonds did comparatively well this week, as investors fled riskier assets for safer investments.
• The Volatility Index (VIX) aka The Fear Index, which measures swings in the stock market, is up over 25% this month, with most of that occurring in the past two weeks.

What headlines moved the markets?

• Jobs data finally released after the government shutdown showed stronger-than-expected hiring, but unemployment also ticked up to 4.3%.
  • Investors betting on a December Fed rate-cut are becoming increasingly pessimistic, with the odds now 50-50 that the Fed will hold rates.
  • Counterintuitively, the stock market selloff caused by the declining probability of a December rate-cut is actually a sign that the economy is in better shape than expected.
  • We still haven’t seen October’s inflation data though, and likely never will, but the belief among investors is that inflation is trending up again.
• The second driver of the current volatility is debate over whether companies are spending too much on AI.
  • Nvidia released Q3 earnings on Wednesday afternoon and beat expectations. This caused the market to be up quite a bit at the open on Thursday, but investors quickly sold out and took profits, driving prices downward throughout the day.

Quote of the week
“A tolerance for short-term swings improves our long-term prospects. In baseball lingo, our performance yardstick is slugging percentage, not batting average.” - Warren Buffett

• Volatility in the stock market is common and should be expected. On average the S&P 500 experiences a 10% drop at least once a year (referred to as a correction).
• Corrections tend to steep, brief, emotionally driven selloffs that last for about six to eight weeks. Whereas more significant 20%+ selloffs, known as bear markets, are much rarer and are a recalibration of stock prices responding to a change in broad economic fundamentals.
• Bear markets are also to be expected, and in some cases can even be avoided, however corrections are impossible to time and just the cost of doing business.

Personal Finance: Backdoor Roth contributions (regular and mega)
Disclaimer: taxes are complicated and unique to each individual. Consult with your advisor before making any major tax decisions. This is general educational information and not intended as financial advice.

• A backdoor Roth contribution is a strategy that allows investors to put money into a Roth IRA even when they make too much income to contribute directly.
  • The IRS sets income limits for direct Roth IRA contributions, but there are no income limits for conversions from Traditional to Roth IRAs.
• First contribute up to $7,000 (or $8,000 if you're age 50 or older) to a Traditional IRA and don't take a tax deduction for this contribution.
• Then convert the money contributed to your Traditional IRA to a Roth IRA.
  • You will owe taxes on the conversion, but since you didn't deduct the original contribution, you're only taxed on growth that occurred while in the Traditional IRA. If the conversion was done quickly enough, then there should not be any growth to be taxed on.
• This strategy is ideal for folks who are still working and want to contribute to a Roth IRA, but earn too much income to make a normal contribution.
• There is also the Mega Backdoor Roth strategy which allows for significantly more money to go into a Roth IRA, however it requires your 401k plan to permit both after-tax contributions (beyond the normal pre-tax limit) and in-service withdrawals/in-plan Roth conversions.
  • Example: you max out your regular 401k contributions at $23,500 and get a $5,000 employer match. You could potentially contribute another $41,500 in after-tax dollars, and then convert that $41,500 to a Roth.
  • Not all 401ks permit doing this, so consult your HR office beforehand.

Conclusion

• The stock market volatility we are experiencing is being driven by speculation over future Fed rate-cuts and company spending on AI. The economy is still fairly strong and there is no indication that the AI bubble is bursting just yet.
• The volatility is the result of emotion, not a shift in economic fundamentals. Don’t make the mistake of letting emotions drive your investment decisions.
• If you earn too much income to contribute to a Roth IRA, then you may want to consider one of the backdoor strategies instead.

Have a nice weekend!

Kevin