Ever wake up the morning after a really good party and everything feels just a bit… off? That’s pretty much where the stock market found itself this first trading day of December.
Last week felt great – the S&P 500 ripped higher, climbing roughly 5% off its recent lows. People were buying dips like they were going out of style. And then Monday hit, and suddenly the enthusiasm dialed back a few notches. Not a crash, not even close, but definitely that fuzzy-headed feeling when you realize maybe you celebrated a little too hard, a little too soon.
Call it a classic case of post-rally reality setting in.
A Familiar Trading Range Refuses to Break
Let’s zoom out for a second. The big indexes spent most of the autumn stuck in a sideways grind, and honestly, nothing that happened last week truly changed that picture. Yes, we bounced nicely off support near the 5,800-5,900 zone on the S&P, and yes, we even reclaimed the 50-day moving average – always a crowd-pleaser among technicians.
But look at the chart and you’ll see the index is still wrestling with the lower boundary of the uptrend channel that guided us through much of the year. In other words, the market is saying “thanks for the lift, but I’m not ready to run to new highs just yet.”
I’ve found these periods frustrating but ultimately healthy. When everything goes straight up, complacency creeps in fast. A little back-and-forth reminds everyone that trees don’t grow to the sky and keeps the more aggressive players honest.
What Actually Moved the Needle Today
Monday’s action wasn’t dramatic, but a few things stood out.
- Japanese bond yields spiked overnight after some unexpectedly hawkish comments from the Bank of Japan – that put global fixed income under pressure and spilled into equities.
- Bitcoin, which had been trying to stabilize, took another leg lower. Crypto weakness tends to travel with risk appetite in general these days.
- Nvidia managed a modest 1% gain despite the sour mood – impressive considering it dropped 12% in November. Big-cap tech still acts as the market’s emotional support animal.
- Alphabet and Broadcom saw some profit-taking after strong runs. Nothing alarming, just normal rotation.
Beneath the surface, breadth was mediocre. Advancers and decliners finished roughly even, and the equal-weighted S&P actually closed lower. When only a handful of heavyweights keep the headline indexes afloat, it’s rarely the start of something explosive.
The Seasonal Story Everyone Wants to Believe
Here’s the narrative you’ll hear in pretty much every strategy note this week: December is historically strong, especially the second half, and after November’s scare, portfolio managers are under-invested and will have to chase performance before year-end.
There’s truth to it. The data backs up a positive December bias, particularly when the month starts from a position of short-term oversold conditions. And yes, a lot of tactical accounts probably covered shorts and added beta last week, but many traditional long-only funds still sit with below-benchmark equity exposure.
The first half of December often feels sluggish, almost like the market is catching its breath, but the closing weeks can deliver some of the year’s best gains.
That’s the almanac talking, and I’ve learned never to completely dismiss the calendar. But leaning entirely on seasonality feels a bit like hoping the weather cooperates because it’s “supposed” to be sunny.
Bonds Are Sending a Message
One of the under-app dumpling stories right now is the backup in yields. The 10-year Treasury touched the low 4% area again after briefly dipping into the 3s last week. Global bond selling – Japan, Europe, and here – has been relentless.
Some of that is simple month-end rebalancing. Some of it is the growing acceptance that the Fed might deliver a December cut but then pause or slow-walk further easing in 2025. Markets now price in roughly three cuts total before reaching a “neutral” level.
Frankly, that’s probably the best outcome for risk assets. Aggressive easing cycles usually mean the economy is in real trouble. Measured, deliberate cuts against a backdrop of steady growth? That’s the sweet spot for equities over time.
Sector Snapshot: Cyclicals Hanging In, Industrials Not So Much
Consumer discretionary names – think retail, leisure, restaurants – continue to act perky. Early reads on holiday spending have been decent, not spectacular, but enough to keep the “soft landing + rate cuts = consumer reacceleration” trade alive.
Industrials, on the other hand, got smacked after another ugly ISM manufacturing report. Anything tied to global goods demand remains under pressure. It’s a reminder that not every corner of the economy is firing on all cylinders.
The 2026 Bull Case Is Already Being Built
Wall Street never sleeps, and the 2026 forecasts are rolling in hot. Consensus calls for low-teens earnings growth, stable to slightly higher valuations, a modest bump from whatever fiscal measures might pass, and of course continued torrential spending on AI infrastructure.
Put it together and you get targets clustering around 11-14% upside from current levels. Remarkably, not a single major strategy desk is calling for a flat or down year. That kind of unanimous optimism always makes me a little nervous – not bearish, just cautious.
Fourth years of bull markets and post-presidential-election years have a habit of throwing curveballs. Earnings rarely grow in a straight line, and valuations can compress even when profits rise.
Retail Traders Step Back – For Now
One clearly positive development: the retail crowd has quieted down. Crypto’s continued weakness seems to have taken the wind out of the most aggressive speculative sails. Robinhood and similar names are 20% off recent highs.
When the “dumb money” confidence indicator rolls over, it often marks a sentiment extreme in the opposite direction. I’ve seen this movie before – retail capitulation frequently coincides with intermediate lows for the broader market.
So Where Does This Leave Us?
In my view, the path of least resistance remains higher, but probably not in a straight line and probably not right this minute. The shallow, quick pullbacks we’ve seen all year have kept most participants engaged without truly cleansing excesses. That works until it doesn’t.
If you’re a longer-term investor, these December wobbles are noise. The fundamental backdrop – decent growth, cooling but not crushed inflation, and a Fed that’s still accommodative – remains constructive.
For traders, patience is the name of the game. Let the range play out a bit longer. A decisive break above the old highs or a deeper washout below recent lows would give clearer direction. Until then, expect more of the same two-steps-forward, one-step-back dance.
The market, like all of us the morning after a good run, just needs a strong cup of coffee and a little time to shake off the haze.
Here’s to hoping the caffeine kicks in sooner rather than later.
