November 2025 Market Sentiment Shift: AI Bubble Fears and Fed Policy Drive Risk-Off Rotation

The market transitioned to a risk-off stance in November 2025, with tech-heavy indices underperforming broader markets. From October 22 to November 21, the S&P 500 declined by 2.05%, the Nasdaq Composite fell by 2.91% (reflecting tech cooling), the Dow Jones Industrial Average dropped by 1.48%, and the Russell 2000 underperformed with a 4.58% decline [0]. This shift was catalyzed by three key factors:

1. AI bubble concerns: Michael Burry warned of an AI bubble in November 2025, shorting NVDA and PLTR [2], while 45% of fund managers identified the AI bubble as the top market risk [3].
2. Reduced Fed rate cut expectations: October’s 94% chance of a December cut [4] fell to ~38% by November [1], with fixed income markets seeing a 1-in-3 chance [5].
3. Fundamentals-price disconnect: NVDA reported record Q3 revenue ($35.1B, up 94% YoY [0]) but declined 1.25%, while PLTR posted 63% YoY revenue growth and a Rule of 40 score of 114% [0] yet dropped 14.88% [0]. Defensive sectors like utilities (+3.23% [0]) outperformed as investors rotated away from high-growth tech.

• The AI bubble narrative has overridden strong earnings fundamentals for tech leaders, indicating price action is driving sentiment more than underlying performance.
• Rapid shifts in Fed rate cut expectations amplified uncertainty, leading to broader market weakness beyond tech.
• The Russell 2000’s steeper decline signals broader market fragility, not just tech-specific issues.

• Risks
  : Potential AI sector sell-off, Fed holding rates unchanged, and increased market volatility [0][1][2][3].
• Opportunities
  : Defensive sectors (utilities) may continue to outperform; buying opportunities could emerge if fear levels escalate (though current sell-off is not extreme enough to indicate extreme fear).

November 2025 saw a market shift to risk-off sentiment, driven by AI bubble concerns, reduced Fed rate cut expectations, and tech underperformance despite strong earnings. Investors rotated into defensive sectors, with broader market weakness evident in the Russell 2000’s decline. Key catalysts include Michael Burry’s AI bubble warnings and the Fed’s policy outlook.