MW The Fed's December rate-cut decision is even more crucial now that stocks are having their worst November since 2008
By Joy Wiltermuth
This usually is a good month for stocks, but in 2025 it's been anything but easy
Outside of AI, much of the U.S. economy is struggling, which has investors focused on Federal Reserve rate cuts.
Stocks have been on a knife's edge in November, vulnerable to huge intraday swings, with traders both rushing to sell and sprinting back in to buy equities - sometimes on the same day.
Bouts of cold feet over lofty valuations in the stock market - and in artificial-intelligence plays in particular - have been blamed. Yet the role of interest rates in the debt-fueled AI spending race also has become a big part of the narrative.
That may explain why Nvidia Corp.'s (NVDA) strong quarterly earnings last week only temporarily soothed investors, before stocks were back to selling off as attention turned to what the Federal Reserve might do with rates at its Dec. 9-10 policy meeting.
Stocks were mostly higher Tuesday, adding to a rally ignited halfway through Friday's session as New York Fed President John Williams made a case for additional rate cuts, but still heading for a monthly loss.
"It's become clearer and clearer by the month how interrelated it has all become," said Andrew Briggs, director of portfolio management at Briggs Group at the Plaza Advisory Group, a Steward Partners affiliate, of interest rates, AI plays, the economy and the bull market in stocks.
"There's basically two economies: AI and everything else."
All eyes on the Fed
San Francisco Fed President Mary Daly said Monday that she supports another rate cut in December because of concerns about the labor market.
This comes as the tech-heavy Nasdaq Composite Index COMP was on pace for a rare November loss of some 3.5%, the S&P 500 index SPX was 1.5% lower and the Dow Jones Industrial Average DJIA was off 1.3% with only a few trading days left in the month, according to FactSet.
Yet safe-haven gold (GC00) was adding to its stunning 56.5% yearly gain, while bitcoin's (BTCUSD) bear-market woes persisted and Treasury yields BX:TMUBMUSD10Y fell.
A drop in long-term yields can ease borrowing costs and provide a lift to the economy, which may be why the small-cap Russell 2000 index RUT was advancing.
"Either you day trade in absolute chaos based on different moves that are unrelated and can't be explained," said Viktor Shvets, head of global desk strategy at Macquarie Capital, "or you invest," he said, pointing to areas of the market with good growth potential.
While markets have endured recent "heart palpitations," Shvets thinks the Fed will be cutting rates soon, he said, because of the feedback loop that now exists between asset prices, spending, 401(k)s and growth. "Policymakers can't allow a holistic deflation of asset prices," he said.
See: A Fed rate cut next month seemed doubtful. Here's why it's now likely to happen.
The odds of a December rate cut were back above 80% on Tuesday, according to the CME FedWatch Tool, up from about 42% a week ago. Tech stocks were in focus again, including shares of Tesla Inc. $(TSLA)$, Alphabet Inc. $(GOOG)$ $(GOOGL)$ and Amazon.com Inc. (AMZN), according to FactSet.
Read: Nasdaq has best day since May as Alphabet drives AI rebound. Here's what it means for the rest of Thanksgiving week.
Tech setback
November tends to be a good month for stocks, with the S&P 500 index SPX gaining 2.2% on average when going back over a quarter-century of data, according to Dow Jones Market Data.
Yet this month has been anything but an easy one, with the S&P 500 still facing a November loss, despite the resumed rallies in stocks. The index remains on pace for its worst November since 2008, when it shed about 7.5%.
This comes despite Alphabet's near 14% gain in November and Apple Inc.'s $(AAPL)$ roughly 3% advance, while many of the other major AI plays MAGS were on pace for monthly losses.
"The market has some AI fatigue," said Donald Calcagni, chief investment officer at Mercer Advisors. "When you look at how much earnings are growing with a company like Nvidia, naturally, that's an important part of what's fueling market gains and sustaining valuations," he said.
See: Why AMD's stock is having its worst month in three years
But if the Fed were to pause its rate-lowering campaign in December, or end its cutting cycle short of expectations, "that undercuts a key assumption of what's been fueling the gains," Calcagni said. "That debt would get cheaper."
On the flip side, even a typical 10% drawdown in the stock market could shock the high-income earners who have been fueling consumer spending. That's because many wealthier households also benefited from the three-year bull run in stocks, which has been led by tech and the AI race.
Should any of the AI plays falter, that could cause a pullback in spending at restaurants and for entertainment, areas that typically employ members of lower-income households, which already have been hit hard by inflation and the Fed's cautious stance on lowering interest rates in the past year.
"A crucial thing for the bull market to continue is that it needs some kind of a tailwind of liquidity - either from a central bank or the fiscal side - that's going to have to continue," said Briggs at the Plaza Advisory Group.
"Outside of AI, you're seeing nearly every portion of the economy struggle," he said. Yet if the Fed cuts rates too much, he said, the worry is that inflation could come back stronger.
Read on: These two 'Magnificent Seven' stocks could be the strongest survivors of an AI apocalypse
-Joy Wiltermuth
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 25, 2025 12:32 ET (17:32 GMT)
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