The market quickly regained its balance after Tuesday’s selloff, which arguably felt like a chaotic one-day shakeup. The S&P 500, which dropped 1.2%, was mostly affected by high-beta semiconductor and AI tech stocks, but it managed to stay relatively stable overall. For the second consecutive day, the S&P bounced back above the 6,760 mark—this threshold notably capped early October’s rally before the index experienced a sharp decline a few days later. The main pressures from Tuesday appear to have stabilized for now.
Bitcoin, often seen as a liquidity gauge, rose by over 2% after experiencing a significant 20% drop. Metaplatforms halted its post-earnings slump, while AMD and other semiconductor stocks regained strength. Consumer cyclicals, like airlines and regional banks, are trying to recover after lagging behind, with airlines up about 6%, despite some lackluster restaurant profit reports. There are a few reasons to feel hopeful about the current downturn in the business cycle: ADP reported better-than-expected civilian payroll numbers, ISM services data was also encouraging, and there’s a hint that the government shutdown might soon end. Notably, the Supreme Court’s discussions indicate that President Trump’s “emergency” tariffs might not be implemented, which could be influencing market sentiment.
However, it’s essential to recognize the limited range of the recent rally. Non-AI sectors have been struggling for some time, which means some of them were really set up to recover rather than just contributing to profit-taking from the strong performers like the Mag7. This mix of more favorable macroeconomic data and a rebound in the business cycle has led to rising U.S. Treasury yields. There’s a belief among some that if the tariffs are lifted, the deficit might expand as the Treasury could issue more funds to reimburse companies affected by those tariffs.
This pattern shows that stock indexes are currently more responsive to economic growth concerns rather than inflation, marking a shift from the negative correlation we saw during the inflation struggles from 2021 to 2023. Typically, a rebound in stocks can be constructive about 70% of the time, though it’s not a definitive signal. So far, the S&P has recovered roughly two-thirds of Tuesday’s losses, but it’s only seen eight declines of 1% or more in the last 145 trading days and sits about 2% below its all-time high.
Still, there’s a lot for the consumer sector to prove. Speculations about an “AI bubble” aren’t fading, and discussions around a potential Fed rate cut in December remain unresolved. All these factors are significant, but with strong seasonal influences, nearly 12% annual earnings growth, and credit markets showing minimal stress, perhaps a little volatility is just what’s needed to clear out any excess and steer the market back towards a positive trend.
