There is an 88% chance that the Fed will cut 0.25% off interest rates on Dec. 10, according to the rarely wrong CME FedWatch futures market, but that implied promise of a fresh round of cheaper money wasn’t enough to boost U.S. stock futures this morning. S&P 500 futures were down 0.64% premarket; Nasdaq 100 futures were down 0.78%.
The pessimism started in Asia, with Japan’s Nikkei 225 down 1.89% and the South Korea KOSPI down 0.16%. Europe was little better. The STOXX Europe 600 was down 0.21% in early trading and the U.K.’s FTSE 100 was down 0.14% before lunch.
It was all a stark contrast to Friday’s trading in the U.S., when the S&P closed up for its fifth straight session. The talk over the weekend was that this signaled the beginning of a “Santa Rally,” the myth that stocks do well in December as traders enjoy the jollity of the holiday season (and the Q4 corporate revenue picture becomes clearer).
Unfortunately, the tech sector is spoiling the party: Bitcoin sank to $85K early this morning before regaining the $86K level. That’s far below its record high from earlier this year of $125K. “It’s beginning to look a lot like a crypto winter,” RBC’s daily morning email said.
More broadly, although the S&P 500 is up 16.5% year-to-date, “fears of an AI bubble remained prominent, with the Magnificent 7 losing ground [in November] for the first time since March,” according to a note from Deutsche Bank this morning.
Those fears took shape in the form of Morgan Stanley’s argument that hedge funds are effectively shorting Oracle’s AI debt by buying credit default swaps on its bonds (a type of insurance that pays out if a debtor defaults). Traders are becoming increasingly skeptical of the way AI companies are fueling their growth via debt rather than revenues.
There may yet be good news for stocks on the horizon, particularly if the U.S. Federal Reserve delivers that cut in December. Traders are now looking toward whether the Fed will cut again in January, emails from from ING and Goldman Sachs said this morning. Right now, CME FedWatch is showing a 21% probability of that happening. “We think the market will increasingly focus on the pricing of subsequent meetings,” George Cole and his colleagues at Goldman wrote. ”We think too little is priced in Q1.”
Here’s a snapshot of the markets ahead of the opening bell in New York this morning:
- S&P 500 futures were down 0.58% this morning. The last session closed up 0.54%.
- STOXX Europe 600 was down 0.21% in early trading.
- The U.K.’s FTSE 100 was down 0.14% in early trading.
- Japan’s Nikkei 225 was down 1.89%.
- China’s CSI 300 was up 1.1%.
- The South Korea KOSPI was down 0.16%.
- India’s NIFTY 50 is down 0.1%.
- Bitcoin fell to $86K.