Ever get that feeling when everything seems to be going right, yet something still feels… off?
That’s pretty much the stock market right now.
On paper the economy keeps humming along, jobs are solid, consumers are spending, and the Fed just delivered the rate cut everyone wanted. Yet the stocks that carried the bull market for the last eighteen months – the AI giants – suddenly can’t buy a bid. Friday summed it up perfectly: the S&P 500 slipped, the Nasdaq got hit harder, and the whole tape felt like it was stuck in neutral.
A Classic Tug-of-War Nobody Asked For
Think of the market as caught in a tug-of-war between two very different stories.
On one side you have genuine economic enthusiasm. Manufacturing surveys are perking up, small businesses are hiring again, and loan demand at banks is actually picking up. The kind of stuff that makes cyclical stocks – industrials, financials, materials – act like they want to run.
On the other side sits a growing case of AI fatigue. After two years of “this changes everything” hype, investors are starting to ask harder questions: How much capex is too much? When do we actually see a return on these hundreds of billions flowing into data centers? And if the leaders can’t give confident guidance, who can?
Friday, the AI anxiety won the day.
What the Charts Are Whispering
Let’s be honest – the price action lately has been messy.
Thursday the S&P 500 scraped a new closing high for the first time in six weeks – barely – and everyone exhaled. Friday it gave all of that back and then some, dropping right down to levels we first saw in late October. The index is now churning just below the psychologically important 6,900 zone.
Here’s the slightly worrying part: the 50-day moving average is converging with the lower boundary of the breakout range from November, sitting roughly 1% lower. That zone has acted like a magnet before. If we slice through it cleanly, the tone could shift fast.
That said, the longer-term uptrend is still perfectly intact. No one is ringing alarm bells yet. It just feels… stuck.
Rotation or Rejection?
Under the surface, money continues to rotate out of the mega-cap growth names and into everything else.
Value stocks are outperforming growth by a decent margin this month. The equal-weight S&P 500 is holding up far better than the headline index (which is still 35% dominated by the usual suspects). Regional banks, energy, even small-caps are showing relative strength.
I’ve said it before and I’ll say it again: a broader market isn’t automatically a safer market. When leadership flips away from a handful of very expensive, very liquid giants, volatility tends to pick up. The old-economy sectors that are catching bids now face valuation ceilings much sooner than AI names that were priced for perfection (or beyond).
“Rotations out of the Magnificent 7 can grow disorderly without much warning.”
– Something I probably mutter in my sleep at this point
The AI Story Hits a Speed Bump
The cracks started showing a month ago, right around Election Day when the Nasdaq-100’s outperformance over the average stock peaked.
Since then we’ve watched one AI-adjacent name after another disappoint on guidance or margins. The latest round came from two heavyweights this week, and neither could calm the nerves about the pace of data-center buildouts or the payoff timeline.
Look, I get it – building the infrastructure for the next industrial revolution costs real money today for hypothetical profits tomorrow. But when you’re borrowing at 6-8% to fund projects that might not generate cash flow until 2027 or later, the math has to work eventually.
Investors who spent two years saying “don’t overthink it, just own the picks and shovels” are suddenly overthinking everything. Funny how that works.
Meanwhile, Bonds Are Sending Their Own Message
The 10-year Treasury yield pushed above 4.19% this week – a three-month high, but still comfortably below the 4.5-5% zone that actually scares equities in 2023 and 2024.
Higher yields here probably reflect growing confidence in economic growth and maybe a touch of relief that the Fed isn’t going to slam on the brakes again. They’re not (yet) the “good news is bad news” tantrum yields we sometimes get.
Still, watching the bond market reprice in real time is rarely boring.
Bitcoin and the Risk-Appetite Barometer
Speaking of things that feel heavy – Bitcoin continues to act like it’s nursing a hangover.
Ever since that ugly liquidation cascade a couple of months ago, the crypto complex has struggled to regain its swagger. Robinhood shares – a decent proxy for retail speculation – are down almost 9% this week alone and sit 20% off their highs.
When the most aggressive traders on earth pull in their horns, it tends to remove a layer of upside fuel from the entire risk complex.
Sentiment Is Frothy – But We’ve Seen This Movie Before
Bank of America’s Bull & Bear Indicator just flashed “extreme bull” for the first time in ages.
Historically that’s been a decent contrarian warning sign. Except… December 2020 flashed the same signal and the market ripped for another six weeks before any real trouble showed up.
So sentiment is stretched, but not necessarily exhausted.
What to Watch Next Week
We finally get November jobs and CPI data – both delayed because of calendar quirks – dropping into a pre-holiday trading environment that can be notoriously thin and twitchy.
- A strong payroll print + sticky core CPI → higher yields, more rotation pressure
- Soft data → relief rally in growth names, Bitcoin bounce
- Mixed but not alarming → probably more of the same sideways grind
Oh, and December has a habit of being weak the first half and strong the second half. So a little softness now wouldn’t be the end of the world.
The Bottom Line (For Now)
We’re in one of those transitional periods that feel uncomfortable precisely because both narratives have merit.
The economy probably deserves higher multiples on cyclical sectors. The AI complex probably deserves a reality check after an 18-month joyride.
Healthy markets need leadership to broaden eventually. But the handoff is rarely smooth, and the risk of a disorderly rotation is real.
My base case remains that this is a digestion phase inside a bull market – not the start of something sinister. But digestion phases can still deliver 10% drawdowns without breaking the bigger trend. Stay nimble, keep risk tight, and remember that December often rewards patience more than panic.
Because right now the market isn’t broken. It’s just trying to figure out who gets to drive the next leg higher.
