Maxco Futures – Global equity markets entered another volatile week, extending the defensive sentiment that has dominated since the beginning of the month. The extended rally driven by the technology sector has lost momentum, as investors reassess valuations and the outlook for monetary policy amid limited fresh economic data.
Both the S&P 500 and Nasdaq posted consecutive weekly declines, with major technology stocks leading the downturn. Megacap names—including AI and semiconductor leaders—saw notable selling pressure after months of valuation surges sparked concerns about a deeper correction.
Although one major tech giant delivered earnings that exceeded expectations, the results were not enough to sustain a buy-the-hype rally. Markets have begun to question the sustainability of AI industry margins. The Magnificent Seven’s combined market capitalization contracted nearly 6% throughout November, adding downward pressure to global equity sentiment.
Rising Fed Uncertainty as Delayed Economic Data Blurs the Inflation Outlook
Monetary policy has returned to the center of market focus. After the Federal Reserve cut rates twice in September and October, investors are now less certain whether a third rate cut will take place this year.
Delays in key U.S. economic releases—stemming from disruptions in government data collection—have left markets with fewer fundamental indicators to guide direction. Recent data shows a moderating labor market: Nonfarm Payrolls rose more than expected, yet unemployment ticked higher and historical revisions point to softer economic activity.
We assess that traders and institutions are currently in wait-and-see mode, awaiting clearer signals from the Fed. Meanwhile, the lack of fundamental data inflow could open the door for increased market volatility.
The 10-year Treasury yield has remained stable around 4.06%, reflecting a cautious stance ahead of upcoming data.
Portfolio Rotation Strengthens as Non-Tech Sectors Gain Attention
While the market pullback has raised concerns, analysts view the current correction as a natural part of the market cycle following a strong year-to-date rally. With valuations becoming more reasonable, asset rotation is emerging: healthcare, energy, and U.S. mid-cap stocks have shown relatively more defensive performance compared to technology.
Institutional investors are also expanding exposure to international and emerging markets, especially regions with lower relative valuations compared to the U.S.
Volatility Expected to Persist, but Long-Term Sentiment Remains Constructive
Market participants will shift their attention to consumer data, household sentiment, and further developments regarding the normalization of federal economic data releases. With monetary policy uncertainty unresolved and tech-sector dynamics highly sentiment-driven, analysts expect short-term volatility to remain elevated.
However, market strategists remain broadly optimistic: the current correction is not seen as the beginning of an economic cycle reversal, but rather an adjustment phase after an extended rally.
“Economic fundamentals remain solid, inflation is gradually easing, and the Fed is still likely moving toward an easing cycle. For long-term investors, today’s market pressure is more of an opportunity than a threat.”
Outlook
- Fed policy direction remains the primary driver of market trajectory.
- The technology sector will continue to be the core source of volatility.
- Portfolio diversification is regaining prominence as a key strategy.
- The current pullback may offer more attractive entry points for Stock Index Futures investors waiting for a correction.
3-Month Outlook (December 2025 – February 2026)
Equities
- Key risks include unclear Fed policy (whether it will cut or pause) and delays/disruptions in U.S. economic data—both contributing to sustained volatility.
- Base case: while the technical correction is underway, a rebound remains possible—especially if economic data stabilizes or monetary policy turns more dovish.
- Even if a rebound occurs, gains are expected to be moderate given already-elevated valuations; a single-digit return over the next 12 months is more realistic.
- Favored sectors for the next 3 months: technology & AI remain primary drivers, while rotation into cyclicals, basic materials, and international markets is gaining attention.
Bonds & Yields
- U.S. 10-year yields have partially risen in recent weeks.
- The yield curve (10-year minus 2-year) remains positive, indicating the market is not signaling an imminent recession.
- If the Fed begins cutting rates or signals easing: yields may fall, making long-duration bonds more attractive.
- Conversely, if inflation reaccelerates or labor market data strengthens: yields could rise further, pressuring both bonds and equities.
Currencies & Commodities
- U.S. Dollar: Under global uncertainty and potential rate cuts, the dollar may weaken—benefiting emerging markets and commodities.
- Gold & Metals: If real rates decline and the dollar weakens, gold may gain momentum.
- Oil & Energy: If global growth remains stable and China/Asia show signs of recovery, the energy sector could benefit.
Ade Yunus, ST WPA
Global Market Strategies