U.S. stocks rebounded this week from their biggest pullback since April, supported by growing conviction that the Fed will cut rates in December. Still, volatility in mega-cap AI names — especially Nvidia and Alphabet — shows the market remains highly sensitive to AI profitability narratives.
Key Insights
- AI profitability under scrutiny: “If this becomes a bigger issue in December, it’s a big problem for the market,” said Matthew Maley (Miller Tabak).
- Market performance:
- S&P 500 up ~16% YTD, now just 1% below its all-time high.
- Nasdaq still 3% off its late-October peak.
- Bitcoin drop signals risk aversion: BTC slid from $125,000 → below $90,000, a key risk proxy investors are watching.
- Tech sector caution: Heavy AI-related capex and debt issuance is raising questions about how quickly investments will translate to earnings.
- Alphabet surge: Now approaching $4 trillion valuation, boosted by strong reviews of its Gemini 3 AI model and reports Meta may spend billions on Google chips.
What Investors Are Watching Next Week
- Economic data: Manufacturing, services, and consumer sentiment — but visibility remains limited due to the 43-day U.S. government shutdown.
- Corporate earnings: Salesforce, Kroger, Dollar Tree — early clues on holiday spending.
- Fed expectations:
- 80% probability of a Dec 9–10 rate cut, up from 50% last week (CME FedWatch).
- Easing could lift broader sectors beyond tech — especially small caps.
Bottom Line
Markets face a tug-of-war between AI valuation risks and rate-cut optimism. With limited fresh data until January, investors must navigate a foggy macro environment — while watching whether December catalysts broaden the rally beyond Big Tech.