Volatility took a breather with the VIX dropping around 35% over a four-day span, the steepest pullback in Wall Street’s fear gauge since mid April.
Treasuries softened after inital jobless claims for the week of Nov 22 fell slightly, defying expectations for a modest increase. The yield on 10-year notes steadied around 3.99%. The dollar slid 0.3%.
“Overall it was a stronger-than-expected round of 8.30am data that has reinforced the notion that there are crosscurrents and mixed performance in the real economy,” according to Ian Lyngen at BMO Capital Markets. “That being said, there is nothing within the reports that will derail the FOMC from cutting by 25 basis points on Dec 10.”
Equities are regaining momentum after early-November jitters over stretched technology valuations prompted a strong pullback. Sentiment has since improved as dovish remarks by Federal Reserve (Fed) officials revived bets on a December rate cut.
See also: US consumer sentiment rises unexpectedly to a six-month high
Those expectations strengthened after it emerged that White House National Economic Council Director Kevin Hassett is the leading contender for the next Fed chair — a choice investors see aligning with President Donald Trump’s push for lower rates.
The release of the US central bank’s Beige Book did little to change the narrative. Employment declined slightly and prices rose moderately, according to the survey of regional business contacts released on Wednesday.
Money markets were pricing in a roughly 80% chance of a Fed quarter-point cut next month and favor three more by end-2026. A week ago, traders expected only three cuts in total.
See also: Traders chase ‘AI resistant’ stocks as disruption fear hits tech
Meanwhile, bullish stock bets for 2026 are starting to come in. Deutsche Bank AG strategists expect the S&P 500 to climb to 8,000 by the end of 2026, implying an 18% rally and supported by strong earnings and rising buy-backs. Their peers at JPMorgan Chase & Co see the benchmark reaching 7,500, while Societe Generale SA has set a 7,300 target.
For Valerie Charriere, the head of European equities at BNP Paribas Asset Management, the shorter-term outlook remains clouded after the recent volatility.
“I don’t expect the typical Christmas rally to occur,” she said. “There are some cracks in AI valuations, uncertainties on the Fed. So taking into account the strong performance so far this year, I would expect rather a rotation to more underperforming defensive sectors.”
In the UK, Chancellor of the Exchequer Rachel Reeves expanded her fiscal buffer to £22 billion ($37.8 billion) in her latest budget. She funded the increase with £29.8 billion in new taxes, including levies on gambling and prime real estate.
The pound and gilts gained as she delivered her speech in Parliament. They had earlier swung after a premature release of an Office for Budget Responsibility analysis gave traders plenty to parse.
“This should lower the likelihood that the government will need to return to the tax well again,” wrote Matthew Ryan, the head of market strategy at Ebury. That comes "with the caveat that market participants will first need to assess whether or not this fiscal restraint can go hand in hand with robust economic growth".
Uploaded by Isabelle Francis
