Stocks rebounded this week from their biggest pullback since April, helped by a firming conviction that the U.S. Federal Reserve will cut interest rates in December. But some of the market’s heavyweight shares remained volatile. Big moves in Nvidia and Alphabet, for instance, were driven by developments in AI.
Equities are poised to maintain this sensitivity, investors said, after concerns about overheated valuations took some of the steam out of a trade that has propelled markets higher this year.
“The narrative surrounding the profitability of AI is coming under question,” said Matthew Maley, chief market strategist at Miller Tabak. “If that becomes a bigger issue as we move through December, that’s going to be a big problem for the market.”
WATCHING FOR SIGNS OF RISK APPETITE WANING The benchmark S&P 500 is up about 16% in 2025, heading into a year-end period that tends to be strong. December ranks as the index’s third-best-performing month, with a 1.43% average gain since 1950, according to the Stock Trader’s Almanac. However, investors are wary of signs of waning risk appetite. Among them is the slide in bitcoin, which in recent days has dropped below $90,000 from over $125,000 in early October.
“Bitcoin serves as a risk proxy for equities, so we’ll be monitoring it closely,” said King Lip, chief strategist at BakerAvenue Wealth Management. With the rebound, the S&P 500 on Wednesday was 1% off its late-October all-time high, while the Nasdaq Composite was down 3% from its late-October peak. Technology stocks have weighed on indexes as questions emerge about the timing of returns on massive spending investments in AI infrastructure. Wall Street was also watching fallout from a rush of debt issuance by major tech companies to fund their AI expansions. “Investors are starting to rethink how quickly some of this … is going to have an impact on bottom lines,” said Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest Wealth Management. Investors’ spotlight this week fell particularly on Alphabet, which had been seen as an AI laggard but whose shares have soared in recent months, pushing its market value up to around $4 trillion. The Google parent has won strong early reviews for its new Gemini 3 AI model. A report this week that Meta Platforms was in talks to spend billions of dollars on Google’s chips rattled shares of semiconductor giant Nvidia, which has been the darling of the AI trade.
ECONOMY IN FOCUS
Economic releases in the coming week cover manufacturing and services activity, and consumer sentiment. Earnings reports are also due from cloud software provider Salesforce and retailers including Kroger and Dollar Tree as a generally strong third-quarter reporting season for U.S. companies comes to a close.
Investors will be eager for any clues about the economic backdrop from those reports, as well as from early indications about holiday consumer spending following Black Friday and Cyber Monday retail sales events.
Many of the data releases that investors rely on to gauge the economy’s health have been delayed or canceled due to the 43-day U.S. government shutdown that ended this month.
It may not be until releases arrive in January that investors get a more complete view of the economy, said Anthony Saglimbene, chief market strategist at Ameriprise Financial.
“Investors are going to have to deal with this fog … through year-end,” Saglimbene said. Despite the cloudy economic picture, traders have increased bets the Federal Reserve will cut rates at its December 9-10 meeting following comments from several central bank officials indicating willingness to ease policy.
Fed funds futures late on Wednesday reflected over 80% odds that the central bank will cut by another quarter percentage point at the meeting, according to CME FedWatch, after such odds showed roughly a coin flip last week.
Prospects of more monetary easing could benefit broader parts of the market beyond the tech and AI stocks that have dominated this year. For example, rate-sensitive shares of smaller companies have outperformed in recent days.
“What I’m watching is through year-end if we do see the Fed cut rates, can we see more positive momentum in other areas outside of technology?” Saglimbene said.
