Global markets are heading into the holiday season on shaky footing as doubts over near-term Fed rate cuts and questions around overheated AI valuations trigger waves of risk aversion.
The S&P 500 and Nasdaq have fallen 4% and 7% from their late-October highs, while volatility surged to its highest levels since April’s tariff shock. The VIX remains above 20, reflecting persistent investor anxiety.
After a 38% rally since April, markets finally hit their first 5% pullback in 149 days—a correction that many say was overdue. Valuations remain stretched, with the S&P 500 trading at 21.8x forward earnings, still well above the 10-year average of 18.8.
What Investors Are Watching
- Fed rate cut probability drops: A December cut is no longer a certainty, especially after mixed jobs data and the unemployment rate hitting a four-year high.
- AI leaders lose momentum: Even Nvidia’s strong earnings could not stop the tech selloff, signaling investors are now reassessing AI premiums.
- Retail investors losing steam: JPMorgan notes weaker “buy-the-dip” behavior compared to earlier selloffs.
- Volatility curve turns flat: A sign that markets expect turbulence to persist into early 2026.
Where Opportunities May Emerge
Despite the turbulence, history shows December is typically a strong month for equities — averaging +1.28% since 1928.
When November is negative, December gains are often double the historical average.
Some portfolio managers are starting to revisit beaten-down tech names, seeing selective opportunities as valuations improve.