iCapital's Sonali Basak on Year-End Market Outlook: Choppy Upside Expected Amid Fed Uncertainty

This analysis is based on Sonali Basak’s appearance on CNBC’s ‘Closing Bell’ [1] on November 5, 2025, where she discussed her perspectives on equity markets and Federal Reserve policy expectations. The interview took place during a period of significant market uncertainty following Federal Reserve Chair Jerome Powell’s October 29, 2025 comments that a December rate cut is “not a foregone conclusion. Far from it” [2][3].

On November 5, 2025, major indices showed mixed performance that aligns with Basak’s “choppy but upside” thesis [0]:

• S&P 500: +0.39% to 6,796.29
• NASDAQ Composite: +0.61% to 23,499.80
• Dow Jones: +0.45% to 47,311.01
• Russell 2000: +1.47% to 2,464.78

The Russell 2000’s significant outperformance (+1.47%) suggests potential rotation into smaller-cap stocks, which could indicate changing market dynamics and support the volatility thesis [0]. Trading volumes were elevated, with S&P 500 volume at 3.5 billion shares, above recent averages, indicating increased market activity [0].

Sector performance reveals notable divergence between cyclical and defensive sectors [0]:

• Strong performers
  : Energy (+2.82%), Industrials (+2.33%), Healthcare (+1.72%)
• Moderate gains
  : Communication Services (+0.99%), Financial Services (+0.68%)
• Underperformers
  : Consumer Defensive (-0.45%), Real Estate (-0.11%), Utilities (-0.05%)

This sector rotation pattern suggests market uncertainty about economic direction, with investors potentially positioning for different economic scenarios [0].

The current market environment is heavily influenced by Federal Reserve policy uncertainty. Powell’s October 29 comments revealed “strongly differing views about how to proceed in December” among Fed officials [2][3]. The Fed is operating without crucial employment and inflation data due to recent government shutdowns, creating a significant information vacuum for policy decisions [3].

The current policy rate range of 3.75%-4.00% remains “modestly restrictive” according to Powell, but the lack of recent economic data makes accurate assessment challenging [3]. This data gap, combined with internal Fed divisions, creates a particularly uncertain environment for monetary policy.

1. Policy Uncertainty and Market Volatility
   : The combination of Fed communication uncertainty and economic data gaps creates a feedback loop where market volatility increases due to policy uncertainty, which in turn makes policy decisions more challenging [2][3].

2. Sector Rotation as Risk Indicator
   : The divergence between cyclical and defensive sectors serves as a real-time indicator of market sentiment about economic direction, with the strong performance of Energy and Industrials suggesting some investors are positioning for economic resilience [0].

3. Small-Cap Outperformance Significance
   : The Russell 2000’s substantial outperformance (+1.47%) may indicate early positioning for potential rate cuts or economic acceleration, as smaller companies typically benefit more from lower rates and economic growth [0].

The current environment reflects a structural shift in market behavior where traditional indicators may be less reliable due to the data vacuum. Investors are increasingly relying on Fed communications and market technical signals rather than traditional economic data [0][3].

1. Monetary Policy Uncertainty
   : The Fed’s December decision remains highly uncertain, with Powell emphasizing that policy is “not on a preset course” [3]. This creates significant volatility risk, particularly around Fed meeting dates and official communications.

2. Economic Data Gaps
   : The lack of recent government economic data makes it difficult to assess current economic conditions accurately, potentially leading to policy missteps and market overreactions [3].

3. Market Timing Challenges
   : The combination of Fed uncertainty and data gaps creates a particularly risky environment for market timing, with historical patterns suggesting increased volatility during such periods [2][3].

1. Sector Rotation Opportunities
   : The current divergence between sectors may present opportunities for tactical positioning, particularly in cyclical sectors that are showing relative strength [0].

2. Small-Cap Potential
   : The Russell 2000’s outperformance could indicate emerging opportunities in smaller-cap stocks, particularly if monetary policy becomes more accommodative [0].

3. Volatility Management
   : For sophisticated investors, the expected “choppy” environment may create opportunities for volatility-based strategies and tactical asset allocation.

• Fed Communications
  : Additional Fed official comments that might clarify December meeting expectations
• Economic Data Resumption
  : Monitor the restart of government data publication for updated economic indicators
• Market Technical Levels
  : Key support/resistance levels on major indices, particularly if volatility increases
• Sector Rotation Patterns
  : Continued outperformance of cyclical vs. defensive sectors could signal changing economic expectations

The market environment as of November 5, 2025, reflects significant uncertainty driven primarily by Federal Reserve policy questions and economic data gaps. Sonali Basak’s thesis of “choppy but upside” potential through year-end appears supported by current market dynamics, including sector rotation patterns and elevated trading volumes [0][1].

The divergence between cyclical and defensive sectors, combined with small-cap outperformance, suggests investors are positioning for multiple potential scenarios rather than a single expected outcome [0]. This environment requires careful attention to risk management, particularly around Fed communications and the eventual release of delayed economic data.

The combination of elevated volatility indicators and policy uncertainty suggests that while upside potential exists, the path may be irregular and require tactical flexibility. Investors should be particularly aware of the risks associated with market timing during periods of significant policy uncertainty and data gaps [2][3].