The S&P 500 and the Nasdaq Composite were well in the green while the Dow Jones Industrial Average put up a red number for the eighth consecutive session on Monday, as investors look forward to the outcome of this week's Federal Open Market Committee meeting. There was broad strength in a familiar group – but breadth data show this market rally is getting weaker below the surface.
As of Monday afternoon and based on 30-day fed funds futures prices, it's 95.4% certain the FOMC will announce a quarter-point interest rate cut when its meeting concludes Wednesday at 2 pm. That would leave the federal funds rate target range at 4.25% to 4.50% heading into 2025.
The Wall Street Journal's Nick Timiraos writes in a broad preview of Wednesday's interest rate decision of a central bank "confronting another potential hinge point." Incoming data suggest things are not how they were in September when the Fed started this round of rate-cutting with a 50-basis-point move because it looked like the labor market was cracking.
According to Jon Faust, who served as a senior adviser to Fed Chair Jerome Powell from 2018 until earlier this year, "Right now, either a cut or a hold could be justified." And, Faust tells Timiraos, commentary around the trajectory of the fed funds rate is probably "more important than whatever they decide about the December meeting in particular."
Powell will host a press conference following the FOMC meeting at 2:30 pm on Wednesday.
The Nasdaq Composite posted a 1.2% gain to 20,173, notching another new all-time intraday high along the way, while the S&P 500 was up 0.4% to 6,074. And the Dow Jones Industrial Average struggled but couldn't snap its now eight-session losing streak, closing down 0.3% to 43,717.
Nvidia corrects
Six of the Magnificent 7 stocks so instrumental in this year's rally posted solid gains on Monday. But Nvidia (NVDA) weighed on the Dow again, giving back another 1.7% following its 2.2% decline on Friday.
NVDA is now down 11.3% from its November 7 all-time closing high of $148.88 – which means it meets Mr. Market's definition of a "correction." Even accounting for this correction, the semiconductor stock is up 166.5% year to date.
Recent weakness is probably a function of questions about sales for its new Blackwell chips as well as potential restrictions on sales to customers in Southeast Asia and the Middle East, as Adam Clark reports for Barron's.
But Dan Ives of Wedbush Securities remains long-term bullish on NVDA and its Mag 7 peers. "We expect tech stocks to be up another 25% in 2025 under our base case based on underlying strength from the AI Revolution," Ives writes in a December 12 note.
Ives forecast Apple (AAPL) will be "the first member of the $4 trillion market cap club" as "the iPhone 16 brings in the AI Revolution to Cupertino," and he "firmly expects" that Nvidia and Microsoft (MSFT) will follow AAPL. Tesla (TSLA), meanwhile, "will reach $2 trillion market cap by the end of 2025." Ives says "the autonomous story at Tesla is worth $1 trillion alone."
That's to say nothing of Alphabet (GOOGL), which was up 3.6% Monday to extend its quantum computing rally, Amazon.com (AMZN), which added 2.4%, and/or Meta Platforms (META), which was up 0.7%.
Breadth contracts
Meanwhile, as Willie Delwiche of Hi-Mount Research observes, "We are 10 trading days into the 'best month of the year for stocks' and every day so far has seen more decliners than advancers on the S&P 500. I've been watching the market for a quarter of a century and have never seen more sustained weakness beneath the surface."
And that's not all: "It is all the more exceptional that the S&P 500 has hit multiple all-time highs during this period."
"Breadth" is a term of technical analysis defined by the number of stocks listed on a given exchange or included in a particular index that are rising vs those that are falling.
On a positive note, "On a 10-day average basis, new highs remain more numerous than new lows," Delwiche writes. And "with the trend in net new highs still rising (for now), it does not pay to get too bearish on breadth."
Stocks on the move
Honeywell International (HON) led the Dow on Monday, rising 3.7% after the multinational conglomerate announced it was exploring the potential separation of its aerospace business to unlock shareholder value.
MicroStrategy (MSTR), Palantir Technologies (PLTR) and Axon Enterprise (AXON) stocks had mixed reactions on news that the trio will join the Nasdaq-100 next week, replacing Super Micro Computer (SMCI), Illumina (ILMN) and Moderna (MRNA).
AXON added 0.7%, while MSTR was down 0.4% and PLTR lost 0.4%. SMCI, still struggling with delisting issues, shed 8.3%. ILMN was up 0.4%, and MRNA added 0.2%.
Finally, Ford Motor (F) stock fell 3.9% after financial services firm Jefferies downgraded the automaker's stock to Underperform (equivalent to a Sell) from Hold and lowered its price target to $9 from $12.
