Market Turbulence Grows as Year-End Approaches
Stock market investors are preparing for a turbulent end to 2025, with uncertainty looming over the timing of potential Federal Reserve interest rate cuts and concerns mounting about the valuations of artificial intelligence companies that fueled much of this year's rally[1].
Despite a strong rebound in equity indexes on Friday, the S&P 500 and Nasdaq Composite ended the week down 4% and 7% respectively from their late October record highs. This shift follows months of positive momentum, driven in large part by exuberance around
Chatgpt and broader AI sector advancements, now giving way to increased caution ahead of the holidays[1].
"It's certainly approaching what looks like is going to be a volatile holiday season," said Eric Kuby, chief investment officer at North Star Investment Management in Chicago. "Without a rate cut ... and with this renewed fear out there, it seems like it's going to be a much more difficult holiday season than we had hoped before."
Lingering Volatility Expected
Volatility spiked sharply during the week, with the Nasdaq and S&P 500 seeing the biggest intraday swings since the April "Liberation Day" tariff announcement[1]. According to Keith Lerner, chief investment officer at Truist Advisory Services, the S&P 500 pulled back 5% from its October peak after a sustained rally since April—a correction that many felt was overdue[1].
- Pullbacks of at least 5% have generally occurred every 77 days since 2010; the recent period lasted 149 days without such a move.
- Retail investors who helped previous market rebounds are now showing less appetite for "buying the dip."
- "While we are not seeing retail investors contributing to the selloff, they are also not showing strong buy-the-dip interest," noted JPMorgan analysts.
Federal Reserve Rate Cut Uncertainty
A major factor behind recent market swings is investor uncertainty over whether the Federal Reserve will announce a rate cut at the December 9-10 meeting—a move many had anticipated until late last month[1].
- The latest jobs data showed stronger payroll growth, but also the highest unemployment rate in four years.
- Comments from New York Fed President John Williams on Friday suggested a near-term rate cut remains possible, but market odds are only slightly above 50% for December.
- Yung-Yu Ma, chief investment strategist at PNC Financial Services Group, believes markets may not recover confidence "until the Fed is more in a clear rate-cutting mode again," possibly later than year-end.
AI Companies and Tech Stocks at the Center
Tech stocks, particularly those at the forefront of the AI boom, have been hit hardest in recent weeks. Stocks like Oracle and Palantir Technologies, which were key beneficiaries of the AI trade, saw sharp declines. Even strong earnings from AI leader Nvidia, whose chips are central to AI infrastructure, were not enough to stabilize the sector[1].
Don Nesbitt, senior portfolio manager at F/m Investments, remarked, "That tells me that investors have been a little bit skittish and I think they just need to regroup here."
Potential Opportunities for Investors
While November's losses have dented short-term market sentiment, some analysts see room for optimism as December has historically been a strong month for stocks. LSEG data shows the S&P 500 has gained an average of 1.28% in December since 1928, and stocks performed especially well in years when November saw declines[1].
Don Nesbitt highlighted that while elevated valuations kept him underweight in information technology this year, the sector is "starting to look a little bit more attractive."
