Wall Street kicked off the week with losses, with both stocks and bonds down in a signal that traders’ aggressive pricing of Federal Reserve rate cuts may have gone too far.

A slew of key jobs readings over the next few days will be closely watched for clues on the Fed’s next steps — with the potential to reignite volatility that has recently shown signs of anemia. Technically “overbought” conditions and bullish positioning have left markets vulnerable to corrections after the historic rallies in both equities and Treasuries last month.

“We’ve had the great rally and now it’s just kind of a ‘chillax’,” Tony Dwyer at Canaccord Genuity told Bloomberg Television.

To Morgan Stanley’s Michael Wilson, U.S. stocks are headed for a rocky end to the year. The strategist said December could bring “near-term volatility in both rates and equities” before more constructive seasonal trends as well as the “January effect” support equities next month. JPMorgan Chase & Co.’s Mislav Matejka said markets expecting a soft landing leave no room for error.

“Perhaps one should be contrarian yet again,” Matejka said.

The S&P 500 fell from the highest since March 2022, while the Nasdaq 100 dropped 1 per cent amid a rout in megacaps. U.S. two-year yields rose nine basis points to 4.63 per cent. The dollar gained. Bitcoin hovered near US$42,000 as frenzied speculation in cryptocurrencies gathered pace.

“The biggest near-term risk for the markets could simply be that after a phenomenal one-month rally, a period of consolidation may be a necessary breather,” said Jason Draho at UBS Global Wealth Management. “A lot of good news is priced in.”

To Paul Nolte at Murphy & Sylvest Wealth Management, the question now is: Will the Fed follow through on the market’s expectations?

“We had a massive increase in interest rates that just haven’t totally hit the economy yet,” said Dana D’Auria at Envestnet Inc. “The market has a decent chance of slowing down next year. Does it mean it’s a massive crash? No, not necessarily. But I don’t advocate chasing after stocks and not being balanced in the way that you go to the market.”

Whether the economy settles in for a soft landing or spirals into something worse, both scenarios suggest lower rates are coming. Nearly 125 basis points of easing are priced in through next year’s December Fed meeting — equal to about five quarter-point cuts.

“Markets are approaching the limits of what can plausibly be priced without attaching material odds of a recession in the near term,” Goldman Sachs Group Inc. strategists including Praveen Korapaty, wrote.

To Chris Larkin at E*Trade from Morgan Stanley, traders may be wondering if the market has gotten a little too complacent.

The percentage of S&P 500 stocks trading above their 50-day moving averages has surged to 84 per cent — indicating broad participation during the recent rally, according to data compiled by Bespoke Investment Group. Meantime, the closely watched bull-bear spread from the American Association of Individual Investors survey recently showed the most-bullish stance for the group since July, nearing levels not seen since April 2021.

The S&P 500 posted an average daily move of 0.3 per cent in either direction last week — its tamest swings in half a year — as the market lost some momentum toward the end of its second-best November since 1980. The Cboe Volatility Index, also known as the VIX, approached this year’s lowest levels last Friday after Fed Chair Jerome Powell gave his clearest signal yet that officials have finished raising interest rates.

“All eyes will be on Friday’s monthly jobs report to see if it confirms the cooling trend we saw most of last month,” Larkin said. “If it doesn’t, it may renew concerns the Fed’s 2024 pivot to rate cuts could be delayed.”

While warnings are piling up that the market is overheating, “don’t fight the tape” still seems to be the motto for many traders in this last stretch of the year.

“If the S&P 500 begins to trend lower, market makers will have to mechanically buy the dip,” say Tier1Alpha strategists. “Conversely, if the market trends higher, dealers will have to sell futures in order to maintain a delta-neutral position.”

If history is any guide, December is unlikely to bring heavy selling. Since 1950, it’s the third-best month of the year for the S&P 500, averaging a 1.4 per cent gain, data compiled by the Stock Trader’s Almanac show.

After emerging from the prior 23 corrections since World War II, the S&P 500 rose an average 9.8 per cent over a 127 calendar-day period before succumbing to another decline of 5 per cent or more, according to Sam Stovall at CFRA. And when it did, the subsequent decline averaged 11 per cent.

“As with all averages, these can also be a bit misleading, since two observations saw the market slip into another 5 per cent+ decline immediately after recovering from the prior correction,” he noted. “However, while a handful of bear markets followed the successful conclusion of corrections, the vast majority were pullbacks and additional corrections.”

“The strength of the market in November has propelled us into December on an optimistic note, but looking ahead to January, a continued rally would depend on results from economic data,” said Mark Hackett at Nationwide. “Two strong, contrasting opinions from bulls and bears both have merit, but the truth likely lies somewhere in the middle.”

To Seema Shah at Principal Asset Management, 2024 should see many of the concerns and questions of recent years finally resolved.

“The long-awaited economic downturn should arrive and depart without leaving much destruction, and inflation should continue to decelerate,” she noted. “Most importantly, the Fed is likely to open the door to rate cuts, reducing the attractiveness of cash.”

Elsewhere, oil declined for the third straight session amid persistent skepticism that the latest OPEC+ supply cuts will tighten the market. Gold retreated from its record high as the dollar advanced.

Corporate Highlights:

  • Starbucks Corp. shares suffered a record run of losses as concern builds that sales trends at the coffee giant have cooled in recent weeks.
  • Mark Zuckerberg is selling Meta Platforms Inc. stock for the first time in two years after the social media giant rapidly rebounded from a tumultuous 2022.
  • Hawaiian Holdings Inc. agreed to be acquired by Alaska Air Group Inc. for $1.9 billion in cash and debt, in the latest attempt to consolidate the U.S. aviation industry.
  • Five9 Inc. has been exploring a potential sale, people with knowledge of the matter said, a little more than two years after the call center software provider scrapped a multibillion-dollar takeover by Zoom Video Communications Inc.
  • Virgin Galactic Holdings Inc. slumped after Richard Branson told the Financial Times that he doesn’t plan further investments in the space tourism company he founded.
  • Spotify Technology SA is reducing its workforce by 17 per cent in the company’s steepest cuts this year, part of an aggressive effort to shrink costs and drive profitability.
  • Qatar’s wealth fund is offloading almost half of its shares in Barclays Plc, a surprise move that comes as the bank’s executives ready a strategic overhaul for early next year.

Key events this week:

  • Japan Tokyo CPI, Tuesday
  • China Caixin services PMI, Tuesday
  • Eurozone S&P Global Services PMI, PPI, Tuesday
  • U.S. ISM Services, Job openings, Tuesday
  • Eurozone retail sales, Wednesday
  • Germany factory orders, Wednesday
  • U.S. ADP private payrolls, trade balance, Wednesday
  • CEOs of the biggest banks on Wall Street, including JPMorgan, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America, expected to testify on regulatory oversight to the Senate banking committee, Wednesday
  • Bank of Canada monetary policy meeting, Wednesday
  • Bank of England issues biannual stability report on UK financial system, holds news conference, Wednesday
  • China trade, forex reserves, Thursday
  • Eurozone GDP, Thursday
  • Germany industrial production, Thursday
  • U.S. wholesale inventories, initial jobless claims, Thursday
  • Germany CPI, Friday
  • Japan household spending, GDP, Friday
  • Reserve Bank of Australia’s head of financial stability Andrea Brischetto speaks at Sydney Banking and Financial Stability conference, Friday
  • U.S. jobs report, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:


  • The S&P 500 fell 0.5 per cent as of 4 p.m. New York time
  • The Nasdaq 100 fell 1 per cent
  • The Dow Jones Industrial Average fell 0.1 per cent
  • The MSCI World index fell 0.4 per cent


  • The Bloomberg Dollar Spot Index rose 0.5 per cent
  • The euro fell 0.5 per cent to $1.0834
  • The British pound fell 0.6 per cent to $1.2632
  • The Japanese yen fell 0.3 per cent to 147.28 per dollar


  • Bitcoin rose 5.2 per cent to $41,798.5
  • Ether rose 2.1 per cent to $2,230.34


  • The yield on 10-year Treasuries advanced seven basis points to 4.27 per cent
  • Germany’s 10-year yield was little changed at 2.35 per cent
  • Britain’s 10-year yield advanced five basis points to 4.19 per cent


  • West Texas Intermediate crude fell 1.1 per cent to $73.28 a barrel
  • Spot gold fell 2.1 per cent to $2,028.10 an ounce