Image Source: Pixabay

Key Points This Week:

• Tech and Mega-Cap Leadership: After Monday’s crypto-driven selloff, mega-cap technology rebounded strongly midweek, led by NVIDIA, Apple, Microsoft, and Intel, with earnings beats and AI-driven initiatives supporting the rally.
• Broader Market Participation: Market breadth improved as industrials, energy, financials, and consumer cyclicals posted gains, highlighting that the rally is no longer solely dependent on tech. Small caps also showed strength, signaling renewed risk appetite.
• Fed Policy and Macro Outlook: Mixed economic data—weak manufacturing, resilient services, and sticky inflation—sets the stage for a widely expected “hawkish” Fed rate cut next week, with implications for rates, bonds, precious metals, and risk assets.
• Chart of the Week – Silver: A bearish momentum divergence in this chart signals potential near-term caution. Strong year-to-date performance and sensitivity to Fed policy highlight the importance of monitoring technical signals alongside macro developments.

The first week of December brought a mix of volatility, sector rotation, and cautious optimism as markets navigated crypto-driven selloffs, powerful rebounds in mega-cap technology, and a full slate of economic data ahead of next week’s pivotal FOMC decision. Despite choppy day-to-day action, the S&P 500, Nasdaq, and Dow all ended the week with modest gains, reflecting underlying strength as investors brace for the policy decision.

Tech and Mega-Cap Reassert Leadership

After Monday’s crypto-related selloff pressured sentiment across risk assets, mega-cap technology regained its footing and ultimately led the market higher through midweek. Monday’s session opened sharply lower as Bitcoin and Ethereum plunged, dragging crypto-exposed equities such as Coinbase, Robinhood, and Bitmine to steep losses. Yet the broader tech complex—initially hit with early declines—showed impressive resilience. NVIDIA surged after announcing a strategic partnership with Synopsys to accelerate agentic AI engineering, while Apple contributed supportive gains that helped tech nearly erase its early losses.

Tuesday’s trading extended that recovery, with tech and mega-caps firmly back in the driver’s seat. Intel led the sector with an 8.7% gain following upbeat commentary on future production and free cash flow expectations, helping push the PHLX Semiconductor Index nearly 2% higher. NVIDIA, Apple, Microsoft, and Meta all posted gains, and stronger-than-expected results from MongoDB and Credo added fuel to the sector’s momentum.

Wednesday flipped the script as mega-cap tech finally paused, led by a pullback in Microsoft following mixed headlines around AI sales targets. Still, the broader market held its ground, reinforcing that the rally is no longer solely reliant on the largest tech names. By Thursday and Friday, the group regained footing: NVIDIA resumed its climb, Salesforce delivered an earnings beat, and although chipmakers faced late-week pressure after two senators introduced the SAFE Chips Act—legislation aimed at preventing the White House from easing export controls without Congressional approval—the sector’s overall leadership trend remained intact.

Across the week, mega-cap performance was choppy but constructive, with several sessions showing that the market can advance even when the largest stocks are mixed. This marks an important improvement from last month, when tech weakness often derailed the broader indices.

Investment Implications:

AI-driven capex, semiconductor strength, and software demand continue to be long-term tailwinds despite near-term valuation concerns. We believe positioning remains constructive for high-quality mega-cap names with strong free cash flow and visibility in AI, cloud infrastructure, and digital services. Select semiconductors and software firms with strong earnings revisions may be key overweight candidates, though volatility may increase as regulatory tensions with China re-emerge.

Please note: Investment Implications are meant as general market commentary and are not individualized investment advice or recommendations. Appropriate allocations depend on each investor’s specific objectives, financial situation, and risk tolerance.

Broader Market Participation Improves

One of the most notable developments this week was a meaningful improvement in market breadth. After Monday’s retreat—which saw utilities, health care, industrials, and financials all move lower—breadth turned sharply positive midweek. On Wednesday, advancers exceeded decliners by roughly 5-to-2 on both the NYSE and Nasdaq, and nine of eleven sectors closed higher. Importantly, this advance occurred even as tech lagged, highlighting stronger underlying support across the market.

Industrials were a consistent bright spot. Boeing soared more than 10% on Tuesday after projecting rising aircraft deliveries and positive free cash flow expectations heading into FY26. Defense names were pressured Monday by speculation surrounding a potential shift in U.S. foreign policy, but industrial cyclicals broadly regained strength through the week. Transportation, machinery, and multi-industrials posted steady gains as expectations for a December rate cut held firm.

Energy also delivered strong performance, with the sector leading on multiple days. Crude settled near $59–$60 per barrel following OPEC+’s decision to keep output steady for early 2026. Natural gas prices surged to levels not seen since 2022, lifting sentiment across exploration and production names. Even with volatility in oil prices tied to macro uncertainty, the energy complex remained a net contributor to market gains.

Consumer-facing cyclicals provided additional support. Homebuilders rallied sharply midweek as falling long-term yields and persistent expectations for Fed easing boosted rate-sensitive housing demand indicators. The SPDR S&P Homebuilders ETF (XHB) rallied back toward October highs. Retail stocks benefited from solid earnings at American Eagle, Dollar Tree, and Ulta Beauty demonstrated strength even as discretionary mega-caps like Amazon fluctuated.

Financials were another standout. Bank stocks posted firm gains Wednesday, and crypto-linked financials rebounded sharply as Bitcoin recovered above $93,000. The Russell 2000, a key barometer of domestic economic expectations, outperformed on both Wednesday and Thursday, an encouraging sign that small-cap risk appetite is returning.

Investment Implications:

The expansion of market leadership beyond tech is a constructive signal for sustaining the rally into year-end. Cyclical exposures (industrials, select financials, energy, and housing-related names) stand to benefit from stabilizing macro conditions and a potential Fed cut. Investors may consider selectively increasing allocation to sectors tied to economic acceleration, particularly industrials and financials, while treating energy as a tactical overweight given renewed price stability.

“Hawkish” Fed Cut Next Week?

The week concluded with a heavy flow of economic data that largely aligned with expectations but highlighted a mixed macro landscape as the Federal Reserve prepares for its December policy decision.

Manufacturing indicators remained weak. The ISM Manufacturing Index fell to 48.2, marking the ninth consecutive month below the 50 threshold. The report’s characterization of conditions as “stagflationary” (declining output, rising prices, and weakening employment) underscored persistent challenges in the goods-producing economy. S&P Global’s manufacturing PMI also dipped modestly.

Labor market readings sent conflicting signals. ADP data showed a surprising 32,000 decline in private payrolls, raising concern about slowing hiring momentum. However, weekly initial claims dropped to their lowest level in nearly two years, reinforcing the view that the labor market remains resilient even as it gradually cools.

Inflation data was broadly in line with expectations. Core PCE, the Fed’s preferred inflation gauge, came in at 0.2% for September, unchanged from the prior month. But underlying components remained sticky and well above the Fed’s 2% target. This stickiness, coupled with solid consumer spending, supports the narrative that while the economy is slowing, it is not collapsing.

Services activity (responsible for roughly 70% of U.S. economic output) remained in expansion territory. The ISM Services Index held at 52.6, consistent with stable but slow growth. Consumer sentiment improved marginally but remained depressed by high prices and economic uncertainty.

All told, the data keeps the Fed firmly on track for a widely expected rate cut next week. However, policymakers are likely to pair the cut with cautionary language designed to prevent financial conditions from easing too quickly—hence the prevailing expectation of a “hawkish cut.” Markets now see a December cut as near certain, while odds of an additional move in January remain low.

Investment Implications:

We expect continued support for equities as easing financial conditions take hold, particularly in rate-sensitive areas such as homebuilders, small caps, and financials. However, sticky inflation and potentially a cautious Fed stance (if it happens) would suggest that yields may not fall rapidly and possibly rise if investors think the Fed will end its current path for lower rates. Earlier this week, Jonathan Krinsky pointed out that while Japan is important to watch for global yields, watching German and French yields nearing breakout levels could be an indication that bond values are in for some weakness. Especially as “yields have moved ‘higher’ immediately following the last five Fed rate cut (cycles).”

Chart of the Week

Writing this section of my weekly wrap-up is always a challenge. I could easily fill an entire article with a dozen charts. For an enthusiast, sticking to one topic is like asking a chef to describe a single spice in a dish without wandering into the entire recipe—it’s all connected, and the excitement naturally spills over. That’s how it feels as a market technician: one chart often leads to another, and the bigger picture constantly wants to break in.

This week, I’m going to resist that impulse and focus on a single setup: a bearish momentum divergence on a particular security. When I worked as a portfolio manager and market technician at Financial Sense Wealth Management, I often played a game with the investment team called “Would you buy this security?” I would hide the name and price to focus purely on the chart and technical indicators, divorcing the analysis from fundamentals—which the chart already discounts.

So…would you buy this chart now?

Source: StockCharts, Ryan Puplava, CMT® CTS™ CES™

On this week’s chart, we see a notable momentum divergence: the 14-day RSI hit a lower peak even as price made a new high relative to October. This setup is typically a warning sign, often preceding a correction or a consolidation phase. I explored this concept in depth back in April 2011 in this article on parabolic moves and momentum divergence.

If you haven’t guessed the chart by now, it’s the continuous spot price of silver. While I don’t have space to go into full detail, the main takeaway is clear: silver has been one of the top-performing assets this year but is showing some concerning bearish momentum signals. From a fundamental perspective, a hawkish pause from the Fed next week could boost the dollar and rates, putting pressure on precious metals. That’s why I see next week’s Fed decision as especially important—not just for bond investors monitoring rate trends or currency traders watching the dollar, but also for precious metals and other risk assets that have rallied over the past two weeks on renewed hopes of another rate cut.

Conclusion

The broader market continues to balance resilient economic data against a shifting policy landscape, while leadership narrows around a handful of durable themes—AI investment, infrastructure build-out, and selective strength in consumers and credit. Technical conditions remain constructive but not without pockets of fragility that merit attention as we move into year-end positioning. As always, the path forward will be shaped by a mix of earnings quality, inflation progress, and the market’s reaction to the “Fed Speak” next week and any color the Chairman can provide on the glide path for rate cuts.

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