The December year-end rally is off to a slow start.
After an opening stumble yesterday, stocks are catching a bid today, though not enough (yet) to erase yesterday’s losses. It’s being led by semiconductors again, as the volatility of the AI theme has picked up, despite the pledges of an enormous build-out of data centers. The rise of AI efforts to challenge OpenAI’s lead, and chips that some see as possibly real competition with NVIDIA, is the latest development.
This morning, we find tech up 1.3%, semis up 1.9%, and NASDAQ +1%. All the Magnificent 7 are in the green, except , flat, and , +2%. While the S&P is up 0.5%, the even-weighted S&P is flat, reflecting the weight of Mega tech once again. Both energy and consumer staples are down 1%.
The yield curve continues to steepen, as short rates are lower and long rates are higher, lifting financial services. The bets on a Fed cut next week are holding at 82%, and a second cut in January at 25%. The rapid rise in Japanese bond yields remains a concern as it disrupts the massive carry trades that may create unexpected selling of various assets as they are unwound.
On the commodity front, precious metals are lower after the recent run-up, likely driven by profit-taking. is trying to hold onto $59/bbl, while natural gas is at a high for the year above $4.90/mcf, also a 3-year high. After one of the worst days of the year, crypto is staging a strong rebound, with breaking below $85K and now back to $90.7K. The volatility here may slow the hopes for wider adoption.
The Black Friday and Cyber Monday sales were strong, but haven’t lifted consumer discretionary stocks. Expectations are still high for a strong finish to the year, but we may have to get the Fed cut for the positive momentum to arrive. After such a strong September and October, seasonally weaker months, there may not be as much left for the year-end as usually occurs.