While a year-end rally in the US stock market seemed certain a week ago due to high demand for AI-related stocks, robust earnings, and strength based on historical averages, Wall Street players are now in a precarious position.
According to data compiled by CFRA Research, the S&P 500 has averaged a 1.5 percent gain in December compared to historical averages since 1945. Despite Monday’s rally, US stocks are still losing ground on a monthly basis.
In this environment, investors continue to show signs of caution against the biggest losses in major technology stocks since August 2024.
After three consecutive weeks of stock market turbulence, the VIX index is sitting above 20 points, typically a sign of increasing market stress.
“Seasonality is always an investor’s friend, but it’s important to remember it’s not absolute,” said Dan Greenhaus, Chief Economist and Strategist at Solus Alternative Asset Management.
The S&P 500 rose 1.5 percent to 6,705.12 on Monday after Fed Governor Christopher Waller indicated he supports a rate cut next month.
Ed Yardeni stated that the S&P 500 is unlikely to reach 7,000 by year-end. JC O’Hara of Roth Capital Markets stated in a Sunday note that they remain cautious. Dennis Debusschere of 22V Research said, “AI profits and uncertainty about upside interest rate risk are likely to limit how much the market can rally toward year-end.”
After Waller announced his support for a rate cut, investor expectations for a rate cut at the Fed meeting on December 9-10 rose to 70 percent.
JPMorgan’s Andrew Tyler told clients in a November 24 note that they remain tactically optimistic, citing resilient macroeconomic data, positive earnings growth, and a resolution to the trade war.
Tyler further noted in his note that historic seasonality also points to a recovery.
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