Wall Street Needs Some Magic in December to Reignite Tired Tech Rally — Barrons.com
By Martin BaccardaxWall Street could be forgiven for wanting November, one of the weakest Novembers since 2008, to come to an end rather quickly.The S&P 500, after all, has fallen nearly 3.5% since the start of the month, with the tech-focused Nasdaq Composite tumbling 6.1%. The market's benchmark volatility gauge, the VIX, has surged nearly 35% and Bitcoin has plunged more than 20%.Even a set of blowout third-quarter earnings from Nvidia, which included a demand outlook that should have quelled concerns over a bubble in artificial-intelligence investment, failed to boost markets for more than a few hours."A short-term pullback in the broader U.S. equity market has been long overdue for a number of reasons, in our opinion, despite our constructive view on the year ahead," said Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets."Investors are questioning whether financial markets have run too far too fast and whether too much risk has been taken on" since this year's rally began in early April, she added.Stocks were set to build on Friday's gains, however, heading into the holiday-shortened week (Thanksgiving in the U.S. is Thursday) but investors most likely are looking ahead to December, a seasonally strong month that could reset the current bull market heading into 2026."The S&P 500 is back on a slower track than the fast track it was on from April 9 until the end of October," said Ed Yardeni, president and chief investment strategist at Yardeni Research."What has changed is that, while the AI bubble isn't bursting, it is losing some air," he added. "But that's actually a positive development for the sustainability of the current bull market, which began on Oct. 12, 2022."A history of solid gains in December should also provide support, particularly given the market's notable November retrenchment.Data from Bank of America, in fact, indicates that each time a 10-month rally of 10% or more was blunted by a November pullback, S&P 500 gains for December averaged around 4.1%.David Laut, chief investment officer at Kerux Financial in Granite Bay, Calif., also thinks the November pullback "paves the way for a market rebound in December.""Many of November's fears about AI and a cratering job market have ended up not coming to fruition, which suggests that we are seeing a traditional market pullback in recent weeks and not the start of a deeper correction," he said.A few things this week, and the Federal Reserve's next interest rate decision in early December, likely will either support that view or provide a firm test to bullish conviction over the final weeks of the year.Consumer sentiment over the Thanksgiving holiday, and the willingness to spend and travel even amid the sustained weakness in the labor market, will provide a crucial reading of the strength of the domestic economy. The Census Bureau's delayed report on retail sales in September, due Tuesday, also will be closely tracked.A Fed rate cut, meanwhile, alongside the central bank's plans to stop selling bonds from its $6 trillion balance sheet into the markets starting on Dec. 1., should support broader market liquidity and feed appetite for risk assets."After last week, it's hard to call a bottom to the correction," said Louis Navellier of Navellier Calculated Investing. "But if the better bets on a December Fed cut come through, we will likely have a material rebound in December."Write to Martin Baccardax at [email protected] content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.