Stock market investors are preparing for a turbulent year-end as uncertainty over near-term Federal Reserve rate cuts combines with concerns that artificial intelligence (AI) stocks, which have driven much of this year's market rally, may be overvalued.
Despite a sharp rebound on Friday, the S&P 500 and Nasdaq Composite remain down 4% and 7% respectively from their late October record highs.
The market, which soared since April on AI excitement and anticipated rate cuts, has shifted to caution, with experts warning of more volatility during the holiday season. "Without a rate cut … it seems like it's going to be a much more difficult holiday season than we had hoped," said Eric Kuby, chief investment officer at North Star Investment Management in Chicago.
Volatility surged this week, with intraday swings in the Nasdaq and S&P 500 reaching levels not seen since last April. The Cboe Volatility Index, Wall Street's "fear gauge," remains elevated, reflecting persistent investor anxiety. Retail investors, who helped drive prior recoveries, are also showing signs of fatigue, analysts say.
Uncertainty over the Fed's December rate decision is a key factor driving market jitters. Meanwhile, tech and AI stocks, including Oracle and Palantir, have faced sharp declines despite strong earnings from Nvidia.
Still, some investors see opportunities, noting December historically performs well, particularly following a November pullback. "Investors … want to dig in and find opportunities," said Jack Ablin, chief investment officer at Cresset Capital.
