Software Index

State of the Market

November 2025 delivered a reminder of the direct impact of policy on economic visibility, as the longest government shutdown in U.S. history finally ended on November 12 after 43 days. Equity markets absorbed the uncertainty with notable moves. Initially, the S&P 500 and Dow were up 2.3% and 2.5% by the end of October. However, since then, each has shed 1.5% and 0.9%, respectively. Tariff fears and absent data have increased uneasiness with the state of the economy.

The shutdown froze releases from the Bureau of Labor Statistics, Bureau of Economic Analysis, and Census Bureau, creating the most significant data void since modern reporting began. September’s employment report, originally due October 3, is now scheduled for November 20. October’s figures may be partially or fully lost. Some economists anticipate continuing market distortions resulting from up to 1.5 million shutdown-associated jobs furloughed for the period. This blackout has left investors navigating without timely labor, inflation, or spending benchmarks.

Despite the data gaps, pre-shutdown indicators had shown resilience carrying into autumn. Q2 GDP expanded at a 3.8% annualized rate, with Atlanta Fed nowcasts holding Q3 near 4.0% despite the reporting gap. Consumer spending remained the primary engine, with total credit- and debit-card outlays per household rising 2.4% year over year in October—the strongest annual growth since early 2024—supported by gains in discretionary categories even as essentials like housing and groceries claimed larger shares of budgets. Holiday projections point to November-December retail spending growing 3.7-4.2% year over year to exceed $1 trillion. Yet sentiment plunged to 50.3 in preliminary November readings (near pandemic lows) as households grappled with prolonged uncertainty. This divergence highlights spending resilience among higher-income groups offsetting caution elsewhere.

The software industry demonstrated robust momentum, driven largely by artificial intelligence integrations, though gains remained heavily concentrated among mega-cap players. Microsoft posted third-quarter revenue of $77 billion, an 18% increase, with its Azure cloud services surging on AI demand from enterprises scaling machine learning workloads. Alphabet’s Google Cloud segment expanded 34% to $15 billion, reflecting similar AI-fueled adoption in data analytics and generative tools. Adobe reported $5.9 billion in quarterly sales, bolstered by AI-enhanced creative software that accelerated user productivity. However, this growth underscores a widening gap, as the top five AI-driven firms captured a substantial portion of sector revenue expansion, pressuring smaller software companies with limited resources to compete for talent and investment amid an investor-preference shift toward proven profitability.

Inflation data delays are complicating assessments of price trends. September CPI registered 3.0% year over year, the highest since January, while Cleveland Fed nowcasts place October near 3.0%. Core measures stayed sticky at 2.9-3.0%, but the absence of October shelter and services details has clouded the Fed’s view of disinflation progress.

Amid these uncertainties, the Federal Reserve cut the federal funds rate by 25 basis points to 3.75-4.0% in October, its second reduction of 2025. Chair Powell described the move as insurance against labor risks, yet December odds for a further cut have fallen to 45% as tariff pass-through threats reemerged.

Adding another layer of friction, the administration’s tariff regime continues to raise concerns about future price pressures, with early estimates suggesting 2026 inflation could rise 0.3-0.5% if fully implemented, pressuring margins in import-heavy sectors. To counter rising food prices, President Trump on November 14 signed an executive order rolling back tariffs on over 200 agricultural imports, including staples like coffee, beef, bananas, and cocoa, aiming to ease consumer burdens amid inflation concerns. While the cuts may slow price increases for these goods, broader tariff hikes elsewhere could offset gains.

With the shutdown’s resolution restoring agency operations, statistical distortions will nonetheless linger into 2026. November payrolls should rebound sharply as 670,000 federal workers return along with associated private workers. Similar rebounds are expected in retail sales and trade data. However, the government resumption agreement is a short-term continuing resolution that funds agencies only through January 30, 2026, essentially postponing deeper fiscal debates and setting the stage for renewed negotiations (and disruptions!) as early as Q1.

Looking forward, risks center on policy execution: prolonged tariff escalation could trim 0.2-0.4% from 2026 growth, while immigration restrictions tighten labor supply. Opportunities remain in domestic energy and technology, where capital expenditure plans appear resilient. Key events include the delayed September jobs release on November 20, the Fed’s mid-December meeting, and initial 2026 budget negotiations, which will determine whether fiscal drag compounds or eases in the new year.