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• The market initially welcomed the Fed’s rate cut, but rising long-term yields recreated the same headwinds seen after the October rate cut.
• A tired AI trade emerged as Oracle, Broadcom, NVIDIA, and semiconductors sold off sharply, pressuring market breadth.
• Major indices showed signs of topping despite prior strength, especially the NASDAQ and S&P 500 near key resistance.
• Market breadth indicators (AT50 and AT200) improved but the tired AI trade weighed on sentiment.
• Individual stocks reflected a split market: AI-linked names struggled while select retailers, homebuilders, and financials held up or advanced.

There were two major themes that dominated trading in last week’s market. The first theme involved the Federal Reserve, which delivered its last statement on monetary policy for the year. The Fed cut its interest rate just as the market demanded, but the bond market reacted unfavorably. Long-term bond yields increased, and now the stock market faces the exact same scenario from the last Federal Reserve cut. Long-term yields went higher, bond prices went down, and that action weighed on the stock market. In fact, yields have been in a short-term uptrend since the October Fed cut. Now, despite a breakout in market breadth, a tired AI trade may be enough to cap the stock market at its prior peak.

A disastrous response to Oracle’s (ORCL) latest earnings report underscored what increasingly resembles a tired AI trade. ORCL tumbled about 11% post-earnings and suffered follow-through selling on Friday. There is ever-increasing worry about Oracle’s spending commitments to deliver on its massive backlog. If a year-end rally still unfolds, the AI trade may be a notable laggard.

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