Macro & Policy: Rate Cut Optimism Returns
The primary catalyst for the week's explosive move was a rapid repricing of Federal Reserve policy expectations. After weeks of hawkish anxiety, the narrative flipped back in favor of the bulls.
Futures markets are now pricing in an ~85% probability of a rate cut at the December meeting, up sharply from roughly 40% just a week ago. This shift was fueled by:
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Cooling Inflation Data: reaffirming the disinflationary trend.
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Fed Commentary: Officials, including San Francisco Fed President Mary Daly, signaled that the labor market has softened enough to warrant further easing.
The AI Centerpiece: "Bubble" Fears Fade
The "AI bubble" fears that dampened sentiment earlier in the month receded as buyers stepped back into mega-cap technology.
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Alphabet (Google) rallied over 5% early in the week on praise for its latest Gemini AI model updates.
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Nvidia, following its blockbuster earnings report ($57B revenue, +62% YoY), stabilized and remained a central pillar of the bull thesis.
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Tesla joined the momentum trade, surging as risk appetite returned across the board.
Valuation Focus: Bulls Retake Control
With the S&P 500 reclaiming the 6,800 level, valuations remain elevated but supported by earnings growth. The "Goldilocks" view—growth that is resilient but not hot enough to stop the Fed from cutting—has emboldened buyers to pay up for quality.
However, with the S&P 500 trading near 28x trailing earnings and the Shiller CAPE ratio around 40, the market is priced for perfection. Any disappointment in the upcoming December data could reignite valuation concerns.
Federal Reserve & Fixed Income: Yields Stabilize
Treasury yields drifted lower, validating the equity market's optimism. The 10-year Treasury yield settled near 4.05%, down roughly 8 basis points for the week.
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The bond market is effectively signaling that the Fed has room to cut rates in December without reigniting inflation.
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Credit spreads remained tight, reflecting no signs of systemic stress despite the elevated rate environment.
Economic & Corporate News: Resilient Consumer
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GDP: Early reads on Q3 GDP suggest the economy is growing at a solid 3.8% annualized rate.
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Retail Resilience: Walmart and other major retailers provided strong guidance, suggesting the consumer is selective but not breaking—a key theme as we head into the critical Black Friday/Cyber Monday window.
Looking Ahead: The Santa Claus Rally?
With November ending on such a high note, the stage is set for December. The S&P 500 has cleared significant technical hurdles, and seasonal tailwinds are now firmly at investors' backs.
The Bottom Line: Momentum vs. Valuation
This week reinforced a key lesson: Sentiment can shift faster than fundamentals.
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Don't Fight the Fed: As rate cut odds rose, so did stock prices.
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Tech is Still King: When risk appetite returns, capital flows back to the AI winners first.
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Stay Balanced: While the momentum is bullish, valuations leave little margin for error. We continue to advocate for diversification across styles and regions to navigate a potentially volatile final month of the year.
