November's stock-market pullback could be a speed bump. Or possibly a hint of something worse to come.

By Isabel Wang

Investors in stocks may be underestimating the risks of a recession from a cooling labor market, says one analyst

After six straight months of robust gains, November is poised to finally break the U.S. stock market's win streak. Suddenly, Wall Street is asking an uncomfortable question it had avoided all year: Has the equity rally finally run out of road?

With less than two trading days left in November, all three major stock indexes on Wednesday were on pace to close out their first losing month since at least May, as simmering doubts surrounding the artificial-intelligence trade and uncertainty over the Federal Reserve's plans for further interest-rate cuts have sent the market lower over the past month.

The S&P 500 SPX has fallen 0.6% so far in November, while the Dow Jones Industrial Average DJIA was off 0.5%, with both on track for their biggest monthly declines since May. The tech-heavy Nasdaq Composite COMP has tumbled 2.3% in the same period, heading for its first month in the red since April, according to FactSet data.

Many on Wall Street have argued that November's pullback - even in a month that historically favors the S&P 500 - hardly comes as a shock after six straight months of robust gains. Instead, they say, it represents both a natural cooldown for a three-year bull run, as well as the first hint that investors are reassessing a more uncertain path ahead amid murky rate expectations and growing concerns about the sustainability of the AI boom.

"We had a lot of different elements of a perfect storm that sent us into this November drawdown. It really started in late October, when the market melted up on very poor breadth as the megacaps kept the indexes pushing higher. The only way that was going to resolve was the beaten-down stocks get a bid again and join the rally to broaden out, or the large caps get hit, and we got the latter," said Ken Mahoney, chief executive of Mahoney Asset Management.

Mahoney told MarketWatch that given how long the stock market had gone without a significant decline, a pullback had been long overdue. So, he said, it was "naïve" for investors not to see the selloff coming, regardless of what development happened to spark it.

November has delivered no shortage of wild swings in the stock market. Earlier this month, lofty valuations among megacap tech names, coupled with mounting concerns about the sustainability of the AI trade, sparked a selloff in growth names. This took place against the backdrop of a broader risk-off mood that even spilled into crypto (BTCUSD) and more speculative corners of the U.S. equity market. Investors also started questioning whether the Fed would move ahead with another interest-rate cut at its upcoming December policy meeting, which weighed on the market earlier in the month, putting extra pressure on interest-rate sensitive areas like small-cap stocks RUT.

To be sure, doubts about the Fed's next move appear to have lifted, with fed-funds futures traders on Wednesday pricing in an 83% chance of another quarter-point rate cut next month, up from less than 40% last week, according to the CME FedWatch Tool. Yet it still serves as a reminder of how fast markets can turn, as sentiment can shift in just a few trading days.

See: The Fed's December rate-cut decision is even more crucial now that stocks are having their worst November since 2008

Tony Roth, chief investment officer at Wilmington Trust, said that even after November's pullback, stock investors might still be underestimating the risk of a U.S. recession as a cooling labor market, falling consumer confidence and the cumulative impact of tariffs on prices could push the economy into a sharper slowdown.

The September jobs report, released last Friday, showed the unemployment rate edged up to 4.4%, a sign of weakness that could prompt the Fed to cut rates in December. Retail sales advanced just 0.2% in September, the government said Tuesday in a report that was postponed a month and a half. That was the smallest increase in sales in four months.

Earlier this week, a long-running survey of consumer confidence showed households were anxious about tariffs, rising inflation, a worsening jobs market, stagnant incomes and political division. The Conference Board's index of consumer confidence, released Tuesday, fell in November to a seven-month low. Consumer sentiment also fell this month to one of the lowest levels on record, according to the University of Michigan.

Roth said stocks maintaining lofty levels shows that investors haven't started pricing in the possibility of a recession. "A lot of economists are concerned [about] the cumulative impact of the tariffs. That price levels [are] going to be very crushing to consumers and ultimately push us into a recession," he told MarketWatch in a phone interview on Tuesday.

"That's not our base-case view right now, but we're not that far away from it, and we're close to thinking that can happen," he added.

To be sure, economic data has painted a mixed picture of the actual conditions of the U.S. economy. While lower-income consumers appear to be struggling, according to commentary from major retailers and quick-service restaurants who reported their quarterly results over the past month, the Federal Reserve Bank of Atlanta said its GDPNow model shows U.S. GDP likely grew at a 4% pace during the third quarter.

Now the question is whether the November pullback presents a good buying opportunity as some investors gear up for a year-end rally. One challenge, however, is that heightened intraday volatility makes it extra difficult to time the market or decide if the bottom has been reached.

Gene Goldman, chief investment officer at Cetera, expects more weakness ahead for stocks as he sees the 200-day moving average (MA) for the S&P 500, currently at 6,169.64, as the next major support level.

The S&P 500 was rising 0.5%, to trade at around 6,799 on Wednesday morning, sitting about 10% above its 200 DMA, according to FactSet data. A pullback toward the 200-day level would bring the large-cap index near correction territory, but would also create a more compelling buying opportunity for investors, Goldman told MarketWatch via phone.

"The markets are going to be volatile through the year-end. Pullbacks [in November] are just normal parts of investing, but when we get a 10% correction, that's a buying opportunity" supported by strong 2026 earnings, upcoming monetary and fiscal stimulus and record cash on the sidelines, he said.

See: Fears about the 'sketchy' economy have Americans turning to secondhand stores for Christmas shopping

U.S. stocks were rising on Wednesday morning, putting the three major indexes on track for their fourth straight day of gains ahead of the Thanksgiving holiday. The Dow and the S&P 500 were each rising 0.6%, while the Nasdaq was up 0.7%, according to FactSet data.

-Isabel Wang

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11-26-25 0947ET