Market Stories by Fathom 27/11/2025

Happy Thanksgiving Day to our U.S. colleagues and friends! As we enter the holiday season, it is an opportune moment to summarize the major developments of the past month and consider the probable trajectory forward.

I. The Ukrainian Peace Process: A Cautious Outlook

The most significant development remains the intensive, high-level negotiations aimed at resolving the Russia-Ukraine conflict. The diplomatic process is currently shaped by competing proposals:

• The Initial U.S. Framework (28 Points): This proposal drew sharp criticism for being perceived as overly favorable to Russia, particularly concerning territorial concessions and limitations on Ukraine's future security architecture.

• The European-Supported Alternative (19 Points): European nations responded with a more cohesive framework that seeks to anchor territorial negotiations to the existing front line after a ceasefire is secured and proposes a higher cap on Ukraine's standing army (e.g., 800,000 troops).

Despite these intensive talks, a comprehensive, final peace agreement is not yet imminent. The core, "red-line" issues for both principal parties remain fundamentally opposed: Russia insists on territorial gains and a guaranteed NATO veto, while Ukraine stands firm on sovereignty and the non-surrender of its internationally recognized territory.

A Potential Catalyst: A key point that may unlock a path forward is the reported proposal for full immunity for political actors concerning their actions during the conflict. If resolved, such a breakthrough would represent a substantial humanitarian relief and a powerful catalyst for economic growth across Eastern Europe.

II. Financial Markets: Volatility, Rotation, and Valuation

1. Risk assets experienced a highly volatile month, with higher-beta instruments and illiquid holdings suffering notable drawdowns. This volatility was principally driven by two intersecting events: Monetary Policy Uncertainty: Early in the month, a reduction in the probability of a Federal Reserve (FED) interest rate cut in December led to a widening of corporate credit spreads and a temporary draining of liquidity from the risk spectrum.

2. The AI Capex Debate: The ongoing scrutiny of the Artificial Intelligence (AI) adoption curve and the highly leveraged financing required to support its massive capital expenditure (capex) plans fueled market unease.

By the end of the period, major equity indices remained largely unchanged, but this masked a severe sector rotation (e.g., Healthcare outperforming, Technology underperforming). Critically, high-yield fixed income and private credit were significantly impacted, and high-flying thematic investments and cryptocurrencies sustained substantial losses. The recent re-pricing of the probability of a December rate cut has since provided a supportive tailwind for market sentiment.

The current macroeconomic picture is fragmented: some segments are deteriorating (e.g., housing), others are highly vibrant (e.g., AI capex), and general consumer spending remains flat.

III. Forward Outlook

The recent 5% market correction is viewed as a positive "clearing event," necessary to flush out over leveraged positions (such as those tied to 0-day options trading) and to stress test the immense credit issuance supporting the ambitious AI capex projects.

Our conviction remains that Value factors will likely outperform Growth factors throughout the current quarter.

Regarding the U.S. equity market, we believe it currently exhibits overvaluation. A sustained, significant move higher would require one of two things:

1. A skyrocketing in Earnings Per Share (EPS). 12% is good but not stellar.

2. A further, significant multiple expansion (Price/Earnings).

With the S&P 500 starting at a circa 23x forward P/E ratio and a great deal of AI optimism already factored into prices, the range of potential outcomes is narrowed: a clear bubble requires multiple expansion; a significant correction requires a retreat to historical valuations. Corporate EPS growth is good, but government fiscal health is deteriorating.

We are, at this point, maintaining a position that the most likely path is sideways movement with only modest, near-term gains, as the market works to justify its elevated starting valuation.

Alexandros Tavlaridis