Poor Jobs News May Be the Positive Catalyst the Market Needs
With concern about high expectations for 2026, investors face a conundrum as we wrap up the year.
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The market is under pressure for the third straight day as investors await U.S. employment data for November. These numbers are about two weeks late, but it will still influence predictions of Fed rate cuts in 2026.
Current expectations are that the Fed will cut twice in 2026 after pausing for a month or two, but a weak report could shift expectations and make it more likely that a cut occurs as early as January if the data are poor. We are back in an environment where poor economic news may be a market positive, as it could prompt the Fed to be more aggressive.
There is also an inflation report coming up on Wednesday that will have an impact, but the most significant market issue currently is valuation in the AI sector. The data-center group looks like a popping bubble right now as concerns continue to build over CoreWeave's (CRWV) balance sheet, which has already delayed some construction and carries massive debt.
Another problem has been the weak action in Bitcoin and cryptocurrencies. Speculators have been hurt badly as the entire group struggles to hold support after a significant drop from the highs hit in October. The speculative disaster is spilling over into stock sectors that had attracted "hot" money, such as quantum computing and AI.
The bears are focusing on valuation and have raised concerns about the amount of upside in 2026. According to Investor's Business Daily, based on the median price target of the companies making up the S&P 500, the index will hit 7968.78 by the end of 2026, which would be a gain of more than 16% based on Monday's close.
That is a very aggressive projection, and it is difficult to see how that can be achieved if the Fed does not cut rates more aggressively. However, if the Fed is more dovish, then it is likely that the economy will not be strong enough to support those price targets. That is a conundrum for investors as we wrap up 2025.
In the short term, the selling pressure of the last few days is setting up conditions for a snap-back rally. The last two weeks of the year have very strong seasonality, and now that we have wrung out some excess and created some negativity, there are better conditions for a rally. If the bulls can manage a push, they will likely attract traders trying to catch a Santa Rally. The FOMO will pick up quickly if a little momentum can develop.
It has been a very tough slog since the glow of a dovish Jerome Powell has worn off and AI concerns have taken hold. The bulls are due soon for some sort of bounce, but will valuation fears hold them back?
At the time of publication, Rev Shark had no positions in any securities mentioned.
