Remember that stomach-drop moment earlier this month when the market opened the trapdoor and everything fell 3% in a single session? Yeah, me too. It felt like the party was suddenly over. Yet here we are, just a few weeks later, and the tape is acting like it barely remembers the drama. The rebound has been so methodical, so quietly confident, that you almost have to pinch yourself to make sure it’s real.
Sometimes the best rallies are the boring ones. No fireworks, no FOMO headlines, just steady buying that grinds higher day after day. That’s exactly what we’ve been watching since the last few trading sessions.
A Textbook Recovery Is Playing Out Right in Front of Us
If you pulled out a 20-year chart of the S&P 500 and covered up the dates, then asked a seasoned trader to tell you what happens next after the pattern we just printed, I bet nine out of ten would say “higher.” Three consecutive days of higher highs and higher lows, lifting cleanly off support near 5,550, stair-stepping through round numbers like they’re speed bumps instead of walls.
Friday close just above 6,600. Monday above 6,700. Tuesday flirting with 6,750. It’s almost mechanical – and in the current environment, mechanical is a compliment.
The index has now reclaimed its 20-day moving average, something oversold markets almost always have to do before anyone takes the bounce seriously. The old high from the day of the reversal is less than half a percent away. Clear the air after that, at least until the all-time highs up around 6,100+.
What Changed? Three Big Things Aligned at Once
First, the Fed pivot narrative got its groove back. After a couple of weeks where it looked like December might be “live” but not guaranteed, the rhetoric flipped hard dovish again. Suddenly markets are pricing in close to 100% odds of a cut next month, and a complete reversal from the 50-50 coin flip we had mid-November.
Second, the purge actually worked. That sharp 5% reset flushed out a lot of the over-aggressive, low-quality junk that had been riding the coattails of the mega-caps. You can see it in the price action – speculative names that used to lead every bounce are actually lagging or going down on up days. That’s healthy cleansing, not something to fear.
And third, leadership is rotating in a classic risk-on fashion. Big Tech isn’t carrying everything on its back anymore. Instead we’re seeing money flow into cyclicals, small caps, regional banks – exactly the groups that tend to shine when animal spirits return but people aren’t ready to go full degen again.
Small Caps Are Telling the Real Story
If you want to know whether this rebound has legs, stop staring at the Magnificent Seven for a minute and look at the Russell 2000.
The small-cap index is already back to levels we haven’t sustainably held since 2021. More importantly, the leadership inside the Russell is textbook for a real risk-on move: regional banks up almost 3% in a single session, industrials strong, consumer discretionary (equal-weight) ripping 2.7%. Meanwhile the highest-beta, story-stock darlings that dominate the index by weight – think quantum computing names, hydrogen plays, yesterday’s meme darlings – were actually down on the day.
That divergence is huge. When the speculative stuff stops leading the bounce, it usually means institutions are doing the buying, not Robinhood accounts YOLO-ing stimulus checks that ran out years ago.
The fact that the most speculative corners of the market are quiet while the boring, rate-sensitive stuff is flying tells you everything you need to know about who’s driving this move.
Even Nvidia’s Ugly Morning Couldn’t Derail Things
Let’s talk about Tuesday morning for a second. Nvidia opened down 7%. In the old days – meaning, like, three months ago – that alone would have been enough to send the entire Nasdaq into a tailspin and drag the S&P with it. Not this time.
The index dipped, sure, but it never felt like anyone was panicking. Volume stayed reasonable, breadth actually improved as the day went on, and by the close we were higher. That’s new-found resilience. The market has decided Nvidia’s earnings reaction is Nvidia’s problem, not a systemic risk event. That’s a big deal psychologically.
Interestingly, money seems to be rotating inside the AI complex too. Alphabet is quietly taking the pole position in a lot of investor conversations, and there’s fresh chatter about Meta leaning harder into Google’s chip ecosystem. The narrative crown inside AI is shifting, and the market loves a new king.
Bond Market Is Singing the Same Tune
Treasury yields are down across the curve, with the 2-year flirting with 4.05% again after reports that Kevin Hassett – seen by many as extremely dovish – is a leading candidate for Fed chair. Whether that rumor has legs or not, the bond market is clearly comfortable leaning the dovish side of the boat.
Maybe more telling is what the bond market isn’t doing. There’s zero fear of an inflation flare-up being priced in, even as people talk about easier policy ahead. That tells me the street believes the soft-landing scenario is still very much alive.
Yes, There Are Still Hurdles (There Always Are)
Look, I’m not here to tell you it’s blue skies forever. The S&P is literally sitting right on top of the early-October high that kicked off the whole turbulent period in the first place. Anyone who chased strength above current levels last month is still underwater and probably itching to get out even. That’s overhead supply.
Consumer confidence rolled over again today, retail sales were mixed at best, and we’re heading into a holiday-shortened week where liquidity can get weird. Plus, year-end seasonality has been a lousy guide in 2024 – the “Santa rally” has been more like the Grinch most of the time.
But here’s the thing: none of that feels like a brick wall right now. It feels like speed bumps.
The Bottom Line – Cautiously Constructive
I’ve been doing this long enough to know that when the market repairs damage this cleanly, you respect it. The easy trade was to lean hard short after the November air pocket. The hard trade – and usually the right one eventually – is to recognize when the storm has passed and the rebuilding phase has begun.
We’re in that rebuilding phase now. The foundation looks solid, leadership is broadening, and the macro backdrop just flipped friendly again. Unless something truly breaks – and nothing on the horizon screams that right now – the path of least resistance feels higher into year-end.
Could it fail? Of course. Markets always can. But the weight of the evidence has shifted. The bulls have the ball, and for the first time in weeks, it actually feels like they might hold onto it.
So yeah… the rupture is healing. And sometimes the strongest scars end up being the places where the metal got hottest and came out toughest.
