North American Markets Gain as Fed Easing Hopes and Earnings Fuel Rally (Nov 3, 2025)

North American equity markets started the week on a positive note on Monday, November 3, 2025, as investors welcomed signs of Federal Reserve policy easing and a raft of upbeat corporate earnings. Major U.S. indices climbed broadly, extending last week’s advanceinvesting.com. The tech-heavy Nasdaq Composite led the way with strong gains, while the S&P 500 and Dow Jones Industrial Average also closed higher. Small-cap stocks in the Russell 2000 added to their recent momentum, narrowing the gap with large caps. In Canada, the S&P/TSX Composite hovered near record levels above 30,000 pointsnbc.ca, and Mexico’s IPC index remained around all-time highs after a strong year. Overall, the tone was cautiously optimistic, with investors balancing encouraging earnings and economic signals against ongoing geopolitical uncertainties.

Broad Market Recap: Stocks Rise Across the Board

Wall Street built on last week’s momentum, when the S&P 500, Dow and Nasdaq each posted roughly 1% weekly gainsinvesting.com. On Monday, all three benchmarks advanced again. The S&P 500 rose modestly, approaching its all-time high after gaining about 13% year-to-datenbc.canbc.ca. The index has been powered by strength in technology and communications shares this year – sectors that have rallied nearly 20–28% in 2025nbc.canbc.ca – aided by hopes that interest rate relief will boost growth stocks. The Dow Jones Industrial Average also ticked up, supported by solid earnings from industrial giants, while the Nasdaq Composite outperformed thanks to big tech stocks jumping on earnings beats. Notably, the Nasdaq’s heavy exposure to high-valuation tech has benefitted as bond yields have eased and the Fed pivots to a friendlier stance.

Smaller companies saw particularly robust gains. The Russell 2000 small-cap index continued its recent breakout, building on a 7% surge in August that far outpaced the S&P’s rise at that timereuters.com. This rally has brought the Russell within single digits of its record high from late 2021reuters.com. Investors have been encouraged by signs of broadening market leadership, as small-cap and value stocks join the rally that was once concentrated in megacap techreuters.com. Financial and industrial stocks – which carry heavier weight in the Russell 2000 – are rebounding, while the index’s historically low valuations provide a potential springboard. After 14 years of large-cap dominance, small caps are trading near record-low valuations relative to the S&P 500hartfordfunds.com, and their earnings growth is finally expected to exceed that of large caps heading into 2026hartfordfunds.com. (Analysts note that profitable Russell 2000 firms still trade at roughly a 26% discount to S&P 500 valuations on forward earningsreuters.com.) The recent Federal Reserve shift is a key catalyst here: smaller companies, being more reliant on debt financing, stand to benefit disproportionately from lower interest ratesreuters.com. “If more monetary easing occurs than is currently priced in, that can be enough to unleash those discounted valuations and pent-up demand for the small-cap asset class,” one strategist explainedreuters.com. Still, questions remain whether this is a durable turning point or “just another blip” for small caps after prior false startsreuters.com.

Chart: The U.S. small-cap Russell 2000 index (gold line) staged a sharp rally in Q3 2025, outperforming the large-cap S&P 500 (blue line) after a prolonged period of underperformance. In August, the Russell jumped 7%, beating the S&P’s gain of ~2%reuters.com. However, over the past decade (lower panel), small caps have still lagged far behind their large-cap peers, reflecting the 14-year cycle of large-cap outperformancehartfordfunds.com. Investors are watching to see if the recent small-cap strength marks a lasting trend change.reuters.comreuters.com

Canada’s TSX Composite index traded near all-time highs, buoyed by its heavy weighting in commodities and financials. The TSX “broke new ground” in September by surging past the 30,000 mark to a fresh recordnbc.ca, and it has kept those levels amid supportive commodity trends. After three quarters, the TSX was up over 20% year-to-date – its strongest trajectory since 2009nbc.ca – thanks in large part to a spectacular 97% jump in gold mining stocks this yearnbc.ca. High gold prices (which hit record highs recently before a slight pullback) have driven the materials sector to an outsized 11%share of the Canadian market’s value, the highest in over a decadenbc.ca. Energy stocks have also contributed, riding the global oil rebound off mid-year lows. Meanwhile, Mexico’s S&P/BMV IPC index has similarly been flirting with record territory. The IPC reached an all-time peak around 59,700 in Mayainvest.com and, after a mid-year dip on trade worries, recovered to the mid-60,000s by this fall. Mexican equities have attracted investors with relatively low valuations (roughly half the price-to-earnings multiple of U.S. stocks)cmegroup.com and a defensive sector mix heavy in consumer staples and telecom. On Monday, the IPC was little changed, consolidating its strong year-to-date gains in the face of a sluggish domestic economyainvest.comainvest.com. Nearshoring trends and investor diversification into Mexico have provided a tailwind, even as Mexico’s GDP growth has slowed to near-zero amid energy sector challengesainvest.comainvest.com.

Macroeconomic Factors: Fed Policy, Rates, and Geopolitics in Focus

Macroeconomic news is playing a pivotal role in shaping market sentiment. Investors are laser-focused on the Federal Reserve, which meets this week and is widely expected to deliver another interest rate cut. With U.S. inflation hovering around 3.0% year-over-year as of Septemberinvesting.com, the Fed has growing room to pivot from its prior tightening campaign. In fact, the central bank already cut rates by 0.25% in September – its first cut since late 2024 – bringing the benchmark fed funds rate down to ~4.0–4.25%blackrock.com. Fed officials have signaled this could be just the start of a gradual easing cycle. According to analysts, “The Fed is expected to cut rates this month by 25 basis points, followed by another reduction in December.”investing.com Barring any inflation surprises, that trajectory would put the policy rate on track for roughly 3.6% by year-endblackrock.com, in line with the Fed’s own forecastsblackrock.com. Notably, Fed Chair Jerome Powell has emphasized a “data-dependent” approach, and traders remain sensitive to each new data point on growth and prices.

Recent economic data have been mixed but generally supportive. The U.S. labor market is cooling only gradually – weekly jobless claims and other indicators suggest employment remains resilient – while consumer spending has held up better than some expected. Last week’s U.S. GDP report (for Q3) showed solid growth, and the latest inflation read (Core CPI at 3.0%) came in a touch softer than fearedinvesting.com. Such readings bolster the case for the Fed to ease off the brakes. At the same time, long-term bond yields have eased from recent highs, which has helped underpin stock valuations. The benchmark 10-year Treasury yield is hovering near 4.1%, down from its peak earlier in the year, as bond markets price in slower growth and Fed rate cuts ahead. Still, yields remain higher than a year ago, and the equity risk premium (stocks’ yield vs. bonds) has been compressednbc.canbc.ca – a reminder that market valuations are somewhat stretched by historical standards. Interest rates and credit conditions thus remain a key swing factor for equities going forward.

Investors are also navigating an uncertain geopolitical backdrop. The past year has seen persistent global tensions – from the war in Eastern Europe to conflicts in the Middle East – that could affect energy markets and investor confidence. So far, however, these risks have not derailed the market’s upward trajectory. One reason is that commodity prices, while volatile, have been relatively contained. Global oil prices are actually lower than a year ago; benchmark Brent crudeaveraged about $68 per barrel in Q3, down ~13% from the same period in 2024reuters.comreuters.com. This decline reflects a “rocky year” in energy markets, where OPEC+ producers unexpectedly increased output and a U.S.-led tariff war clouded the outlook for demandreuters.comreuters.com. Cheaper oil has helped ease headline inflation and lower input costs for many companies, albeit at the expense of energy sector revenues. On the flip side, gold prices hit fresh record highs in recent weeks (above $4,000/oz) amid a flight to safety and speculation that central banks will ease – though gold pulled back slightly this week as some profit-taking set ininvesting.com. In general, the commodities complex is sending a positive signal: moderate oil and strong gold suggest both manageable inflation and ample safe-haven demand, a combination that equities have digested well.

Trade policy is another wildcard. Tensions have risen on multiple fronts, but the market is hoping for de-escalation. Notably, the U.S. and China have been locked in trade disputes involving tariffs and tech export restrictions. However, late last week the White House confirmed that President Donald Trump will meet China’s President Xi Jinping at an upcoming summit in South Korea – a development that “buoyed markets” on hopes of renewed dialogueinvesting.cominvesting.com. This planned meeting follows a period of “heightened U.S.–China trade friction”, including Washington threatening new tariffs of up to 100% on certain Chinese goods and Beijing retaliating with export curbs on critical rare earth materialsinvesting.com. Any thaw in U.S.–China relations would be a relief for multinational companies and could remove a headwind to global growth. Closer to home, U.S.–Canada trade relations have seen strain as well. President Trump stunned observers by declaring an end to trade negotiations with Canada last week, citing a political disputeinvesting.cominvesting.com. Canadian officials downplayed the rhetoric, but the incident highlights the unpredictable nature of trade policy this year. Thus far, there has been “little to no retaliation” to U.S. protectionist measuresnbc.canbc.ca, which has prevented a worst-case scenario of spiraling tariffs and inflation. Still, businesses on both sides of the border are eager for clarity. Any progress – or further breakdown – in North American trade talks could influence sectors like autos, agriculture, and manufacturing in the coming months.

Earnings Season Highlights: Tech, Industrials and Energy Outperform

Corporate earnings have provided a much-needed tailwind for stocks, with many companies delivering better-than-expected results in the recent quarter. This week marked the tail end of the Q3 earnings season, and overall profit growth has been healthier than anticipated, particularly in sectors like technology, industrials, and energy.

Technology mega-caps once again posted impressive numbers, reinforcing their leadership role in the market. For example, Apple (AAPL) reported that its quarterly revenue grew about 8% year-over-year to $102.5 billion, with earnings per share up 13%apple.com. The iPhone maker saw robust demand for its latest devices and a record $27 billion in services revenue, offsetting softer iPad salesinvestopedia.com. Apple’s CEO highlighted the company’s heavy investments in artificial intelligence (AI) and new product development, signaling confidence in future growth. Similarly, Amazon (AMZN) handily beat forecasts on the back of resurgent growth in its cloud division. Amazon’s Q3 net sales jumped 13% to $180.2 billions2.q4cdn.com, and its Amazon Web Services (AWS) cloud unit saw revenue accelerate 20% year-over-years2.q4cdn.coms2.q4cdn.com – the fastest pace since 2022. CEO Andy Jassy noted that AI demand is driving “meaningful improvements” across Amazon’s businessess2.q4cdn.com. These results propelled Amazon’s stock to record highs, alleviating concerns about a slowdown in big tech. Other giants like Microsoft and Alphabet also delivered solid earnings, with strong cloud and AI-related sales growth bolstering their outlooks. In aggregate, the tech sector’s earnings have outperformed expectations, a reassuring sign given its outsized influence on indexes.

Industrial and manufacturing companies have also shown resilience, despite facing higher costs and, in some cases, tariff headwinds. An outstanding example was Caterpillar (CAT), often seen as a bellwether for the industrial economy. Caterpillar’s third-quarter sales hit an all-time high of $17.6 billion, up 10% from a year earliermanufacturingdive.commanufacturingdive.com. The company cited surging demand for heavy equipment and power generators to build out data centers and AI infrastructure – a new growth driver that helped offset softness in construction machinerymanufacturingdive.com. In fact, CAT’s energy & transportation segment (which makes turbines and engines) saw sales jump 17% on booming orders from cloud data center projectsmanufacturingdive.com. These trends led Caterpillar to raise its full-year outlook, even as it navigates tariff-related costs in the hundreds of millionsmanufacturingdive.commanufacturingdive.com. Management noted tariffs on industrial goods (including new U.S. duties on imported heavy truck parts that took effect November 1) have been a headwind, but so far strong volume growth and some pricing power have helped the company “offset increased manufacturing costs”manufacturingdive.commanufacturingdive.com. Other industrial firms echoed similar themes: Boeing reported improving cash flows as it ramps up aircraft deliveries, and Honeywell saw robust orders for commercial aerospace and automation equipment. U.S. manufacturing activity overall remains mixed – the latest factory PMI is still around the breakeven 50 level – but infrastructure spending and reshoring trends are providing pockets of strength. The market has rewarded industrial stocks that execute well; the Dow Industrials index, while lagging tech, is up solidly on the year and benefitting from this sector’s steady performance.

The energy sector has been a tale of two halves: operationally strong, but financially down from last year’s oil boom. Even so, oil & gas companies delivered upside surprises this quarter. ExxonMobil (XOM), the largest U.S. oil major, beat Wall Street profit estimates with adjusted Q3 earnings of $8.1 billion ($1.88 per share)reuters.com. Higher production volumes – especially record output from Exxon’s Guyana and Permian Basin projects – helped offset the impact of lower crude pricesreuters.comreuters.com. Exxon actually raised its dividend by 4% and is on track to complete a $20B stock buyback this yearreuters.comreuters.com, signaling confidence in its cash generation. However, the company’s free cash flow did decline from a year ago, reflecting increased capital spending and the roughly 13% drop in Brent oil prices versus last yearreuters.com. Likewise, Chevron (CVX) impressed investors by topping earnings forecasts thanks to record production following its acquisition of Hess Corp.reuters.comreuters.com. Chevron’s output hit 4.1 million barrels of oil equivalent per day, a new high, which along with improved refining margins boosted results. Adjusted profit came in at $3.6 billion ($1.85/share), beating estimatesreuters.com. Still, Chevron’s upstream earnings were down 28% year-on-year due to the lower oil and gas pricesreuters.com, a trend seen across the industry. In response, both supermajors have kept a tight grip on costs and capital spending. Their message to shareholders is that even with $65–70 oil, they can operate profitably and return cash through dividends and buybacks. Many smaller independent oil producers and oilfield service firms, however, have felt more pain from the commodity price retreat and are exercising caution on drilling plans. On the upside, natural gas prices have risen sharply (U.S. natgas averaged ~38% higher than a year ago in Q3)reuters.comreuters.com, which provided a boost to companies with gas exposure. All in all, energy earnings were mixed but generally better than feared, and the sector remains focused on efficiency as it weathers price fluctuations. If oil stabilizes or rebounds in coming months, energy stocks could see renewed investor interest given their underperformance year-to-date.

Small-Caps vs. Large-Caps: Positioning and Outlook

A key theme for many readers of SmallCap Network (SCN) is the relative performance of small-cap stocks versus their large-cap counterparts. Recently, small-caps have been mounting a comeback after a prolonged stretch of underperformance. As noted, the Russell 2000 surged in late summer and continued to show strength this fallreuters.com, outpacing the S&P 500 in several recent weeks. This marks a welcome broadening of market leadership – a wider swath of stocks beyond the familiar mega-cap tech names are now contributing to market gainsreuters.com. The drivers behind this small-cap revival are both fundamental and macroeconomic. On the fundamental side, earnings growth for small-cap companies has turned sharply upward after a difficult 2022–2023. In fact, Russell 2000 earnings jumped an estimated 69% in Q2 2025 from the prior yearreuters.com (admittedly off a depressed base), and analysts forecast 35%+ year-over-year earnings growth for these companies in each of the next six quartersreuters.com. This profit boom is partly due to a post-pandemic recovery in sectors like consumer discretionary and financial services that dominate the small-cap index. It’s also a sign that many smaller firms have finally right-sized their operations and are emerging leaner and more profitable. Large-cap earnings are growing at a slower clip, so the valuation case for small caps has become quite compelling: as mentioned, small-cap stocks trade at roughly 13× forward earnings on average, versus ~25× for the S&P 500cmegroup.com. Such a gap – near historic extremes – suggests substantial mean reversion potential if economic conditions permit.

The macro backdrop is indeed a big “if.” Small-cap outperformance historically tends to come in the early stages of Fed easing cycles or economic reboundsml.com. Smaller companies are more domestically oriented and sensitive to credit conditionsreuters.com. Thus, the current Fed pivot to rate cuts has been “critical to recent small-cap gains,” according to market strategistsreuters.com. Lower borrowing costs disproportionately benefit smaller firms, which generally have higher debt ratios and less cash on hand than blue chips. The hope is that as rates fall and lending conditions improve, small businesses can refinance debt, ramp up capital investment, and capture a larger share of any economic growth. Indeed, Fed Chair Powell’s speech in late August – interpreted by markets as opening the door to imminent rate cuts – sparked the Russell 2000’s biggest one-day jump since springreuters.com. Fund flow data show investors have started rotating into small-cap stocks, sensing that the “bar to clear” for these beaten-down names is quite low after “eons” of underperformancereuters.comreuters.com.

That said, risks remain. If the economy were to stumble into recession or if credit markets tighten unexpectedly, small caps could quickly lose favor as investors flee to the perceived safety of large-cap stalwarts. Some analysts caution that not all small-caps will thrive; selectivity is key, as weaker players with high leverage could still struggle even in a lower-rate environmentreuters.com. For now, however, the trend appears to be turning. Many portfolio managers are “considering small-cap equities in 2025” given the extended valuation cycle favoring large caps is arguably in its final inningshartfordfunds.comhartfordfunds.com. If economic growth broadens and deglobalization and infrastructure spending themes play out, smaller domestic companies could see a more favorable backdrophartfordfunds.com. In sum, small-cap stocks are no longer on the sidelines – they are increasingly part of the market conversation as we head into year-end, and their performance relative to the Apples and Microsofts of the world will be an important barometer of investor risk appetite.

The Week Ahead: Fed Meeting and Jobs Report on Tap

Looking forward, investors are gearing up for several major events in the coming week that could set the tone for the rest of November:

• Federal Reserve Policy Decision (Wednesday, Nov 5): The Fed’s next meeting concludes mid-week, and markets widely anticipate a 0.25% rate cutinvesting.com. Fed Chair Powell’s press conference will be parsed for clues on future easing – any hint of a pause or acceleration could jolt both stocks and bonds.
• U.S. October Employment Report (Friday, Nov 7): The Labor Department’s jobs report will be critical in shaping Fed expectations going forward. Economists forecast a modest gain in nonfarm payrolls and a steady unemployment rate around 4%. A significantly weak jobs number could fuel bets on more aggressive Fed cuts, while an upside surprise might raise questions about inflation pressures.
• Corporate Earnings Wrap-Up: Earnings season is winding down, but a few notable companies are still set to report. Investors will hear from some consumer-facing names and media companies – for instance, Walt Disney Co. is scheduled to announce results the following week. Any guidance updates from late reporters could still move individual stocks, though the broader market impact should be limited now that most heavyweights have reported.
• Geopolitical Developments: Traders will keep an eye on the global stage for any news on trade talks or conflicts. Attention is especially on U.S.–China relations ahead of the planned Trump–Xi meeting later this monthinvesting.com. Also, in Canada, the government’s Fall fiscal update (expected on Nov 4) may introduce pro-business measures or spending plans that could influence Canadian marketsnbc.ca. And while not immediate, early signals about the upcoming U.S. election cycle or government funding debates could start to percolate and impact market sentiment.

With stocks near highs and volatility relatively subdued, market participants will be watching these events closely for any catalyst that could break the calm. The consensus view is that a “Goldilocks” scenario – cooling inflation, a patient Fed, and decent growth – has supported the 2025 rally so far. Whether that narrative holds through year-end may depend on data and policy decisions in the next couple of weeks. For now, investors appear positioned optimistically, but also ready to adjust should the macro winds shift. As always, SCN will continue to monitor how small-cap and large-cap dynamics evolve in response to these factors, helping our readers navigate the opportunities and risks in today’s market.

Sources: North American market performance and index recordsnbc.canbc.ca; Federal Reserve and inflation outlookinvesting.cominvesting.com; corporate earnings reports and analyst commentaryinvestopedia.coms2.q4cdn.commanufacturingdive.comreuters.com; small-cap vs large-cap analysis from Reuters, Hartford Funds, and othersreuters.comhartfordfunds.com.