November 2025 Commentary and Economic Outlook
- InfraCap Management
- 4 days ago
- 6 min read
NOVEMBER 2025 EDITION:
Commentary and Economic Outlook
Scroll to read full report or click below to skip to specific sections:
MARKET & ECONOMIC OUTLOOK WEBINARBe sure to register and attend our Monthly Market & Economic Outlook Webinar scheduled for Thursday, November 20th 2025 @ 1:30PM EST. In the webinar, Jay Hatfield, Infrastructure Capital Advisors CEO and Portfolio Manager, will walk you through updated market commentary, and economic outlook for the coming months. SIGN UP! |
 | Economy: |
We expect the Fed to pause at their next meeting due to their flawed monetary framework where they use an arbitrarily low target, fail to adjust the price index for anomalies, and use flawed Keynesian models to forecast inflation. The Fed will only potentially cut if the November employment report is very weak.
As expected, the Fed cut rates by 25bp and announced the end of its balance sheet reduction. There was a surprise dissent to the cut from Jeffrey Schmid of the Kansas City Fed and an expected dissent favoring a 50bp cut from Stehen Miran. The statement was largely unchanged with no indication of future rate cuts. Due to the surprise dissent, the bond market traded off slightly while the stock market was largely unchanged. We continue to expect a December rate cut and three more cuts in 2026 to get the Fed funds rate to the neutral rate of 2.75%. We project that core PCE will decline to the 2% area by the end of 2026 as the shelter component of CPI has finally started to reflect the decline in market rents. In fact, our real time measure of inflation utilizing market rents already has declined to the 2% are for core PCE.
The last inflation report was very bullish as the critical owner’s equivalent rent component declined to only .1% compared to .4% the prior month and 3.8% Y/Y. This decline is critical as it reflects market rent declines and implies that core PCE will decline to the Fed’s arbitrary 2% target by the end of 2026. Our CPI-R indicator, which uses real-time rents, has consistently shown that inflation is below the Fed’s target and that shelter inflation is falling.
The monetary base is the critical leading indicator of inflation and GDP growth. M1 and M2 have become outdated indicators after the GFC as banks now have massive excess reserves so the Fed can no longer control the size of bank balance sheets to restrict credit. In addition, non-bank lending has grown exponentially, further limiting the importance of M1 and M2 relatively to the monetary base.
The monetary base has shrunk by over 6% Y/Y vs. a normal growth rate of 5%, which is very deflationary and could lead to a recession.
The only reason the US economy is not in recession is the housing sector has become less cyclical as home building has remained muted since the GFC with only an average of 1.1MM homes started with a peak of 1.8MM. During the 10 years prior to the GFC, starts averaged 1.7MM with a peak of 2.3MM.
The “Hatfield Rule” is a recession indicator which states that if housing starts drop below 1.1MM there will be a recession. It is superior to the “Sahm” rule as housing is a leading indicator and employment is a lagging indicator.
Consequently, there is a significant shortage of homes in the US of approximately 4MM homes. Also, there is now an active group of investors buying new homes to rent which provides for more resilient demand than has existed in the past. A decline in the housing sector accounted for 12 out of 13 post WWII recessions.
We publish a real time CPI estimate that calculates the shelter component of CPI utilizing real time, national data from Zillow and Apartment list.
CPI-R continues to be a be below CPI-U (Core CPI) and has been a reliable predictor of CPI-U.
In addition, employment growth has stalled with less than 22k jobs created on average over the last 4 months according to the employer survey showing no growth over the last 7 months and over 850k jobs lost according to the household survey. Continuing claims also remain elevated at almost 2MM.
Private investment GDP drives economic cycles.
Tariffs are positive for economic growth in the medium to long term as the additional revenue from tariffs reduces the federal budget deficit and crowding out of private investment. Savings and investment are 70% correlated with GDP growth globally according to an IMF study.
We forecast that the Federal Budget deficit declines to $1.45 Trillion in Fiscal 26 with tariffs contributing $400 billion of incremental revenue based on an expected average tariff rate of 17.5%.
| Stock Market: |
Our 2025 S&P 500 Index target is 7,000 which represents 23x 2026 S&P EPS and 7,900 for 2026, also assuming a 23x multiple. hat high multiple is justified due to the ongoing AI boom, increased visibility on Fed rate cuts and historically low corporate tax rates.
Targets are not just designed to signal buys but also sales. Our 7,000 target is working well this year as the market pulled back when it hit 6,940 as the Mag 8 are fully valued with our models currently showing only 1.8% average upside.
We do not think that AI stocks are in a bubble as the MAG 8 are fairly valued but not substantially overvalued. In addition, we believe that any major company that does not invest substantially in AI will be left behind. We do think there will be an AI bubble over the next 3 years which creates a huge opportunity for investors in today’s market.
The bankruptcy of First Brands and Tricolor has created a minor panic in the credit markets which creates an opportunity for long-term investors. The auto credit market is experiencing increased defaults due to tight Fed policy, but we expect that increase to ease as a new Fed Chair cuts rates next year.
The recent pullback in the market is normal after earnings season and we see substantial support for the market at 6,700, which is the 50-day moving average with even stronger support at the 100-day moving average of 6,550 during this seasonally weak period post Q3 eps season.
Given the decline in rates and our bullish outlook on stocks, we favor large cap dividend stocks, small cap stocks, and high yield fixed income.
| Bond Market: |
We project that the 10-year treasury trades in the 3.5 - 4.0% range as the terminal rate of expected Fed funds trends down to the 2.75% area as reported inflation slowly reflects the decline in real time inflation.
The economy is slowing and weakness in the US job market will likely force the Fed to cut rates 4 times over the next year. GDP growth has only averaged 1.5% this year and the interest sensitive construction and residential sectors have contracted over the last year in response to tight Fed policy.
Importantly, 2 members of the 7-member Federal Reserve Board came out for a July rate cut. The market had failed to recognize that tariffs are recessionary/deflationary as the tax revenue reduces the deficit.
US 10-year bonds are 70% correlated to the expected terminal Fed Funds rate and 25% correlated to global bonds (see attached slide). The budget deficit is relatively static and has been in the 5% of GDP range for years, so not a driver of interest rates in the short to medium term.
Market implied policy rate continues to forecast 10-year yields with a 1% average spread.
We recommend investors add high yield bonds and preferred stocks as we do not expect a big increase in defaults and we expect treasury rates to decline below 4% as the economy weakens.
| Commodities |
We lowered our 2025 target on oil from $80 to $70 (range of $60-80) as it has become clear that Trump will use his influence with the Saudis and Russia to limit price increases despite tighter sanction on Iran. This policy will offset a good portion of one-time price increases from tariffs. We do not expect an increase in US production. We do see support for oil below $60 as most forecasters ignore the price elasticity of supply and demand for oil. Middle East wars will only impact prices if oil production facilities are destroyed.
Artificial Intelligence and data centers have opened new growth prospects for natural gas midstream companies to supply gas fired power plants. Natural gas plants have some of the shortest times to build and we believe they are best positioned to supply reliable power quickly.