The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
A handful of reasons.
Asian markets rallied strongly last night and Europe was up modestly in the early morning. The bearish forces that pushed our markets down today came to bear during our trading day. Oracle pushed back the timeline on a data center of some kind and the Street perceived that as a reason to pare back the AI-complex of equities. The Treasury curve steepened and rekindled the worries concerning inflation. Bitcoin fell down hard at 10 AM and is back at the $90k level. I’m sure there were other lesser headlines and forces at work but the conclusion is simply that investors made some significant risk-off moves going into the weekend. Markets currently price a 25 bip cut at the next Fed meeting at 24%. That meeting is Jan 28, 2026.
Considering that the S&P printed an all-time closing high yesterday, a drop today isn’t shocking. We’re about 100 points below an all-time intraday high, so bulls shouldn’t be fazed by today’s setback. The calendar from now until year end is light so we’re dealing with traditional end of year flows and sentiment. That bodes well for the longs. We should also remember that quiet stretches during the year usually resulted in an upward drift. The last half of December is usually quiet.
Downside risk lives in surprise headlines around the corner. Whether a further collapse in Bitcoin would count as such a headline is a semantic argument. Bitcoin qualifies as a known risk but a large further drop would also surprise. It is odd that the market still hasn’t decided whether a Bitcoin-related liquidation/bankruptcy would directly affect stocks or not. At present the market still thinks the linkage is a definite maybe… which isn’t much… and is as dangerous as it is vague.
Markets have a few issues to ponder over the weekend. The major ones are inflation and the back end of the bond market, AI valuations, the health of the labor market, and the domino effect of Bitcoin.
No single situation is dire so the status quo will likely help the bulls. If they turn for the worse, that’ll ramp up bearish inclinations.
Watch for news during the weekend and let’s see how everyone feels on Monday.
See you then, have a great weekend.
-Mike
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