U.S. stocks are positioned to extend Friday’s gains, driven by growing investor expectations for a potential Federal Reserve interest rate cut in December. The question lingering in the market, however, centers on how much further these stock prices can rebound.
Futures tied to the S&P 500 rose by 0.3% during London trade, while the tech-heavy Nasdaq index saw a slightly higher increase of 0.5%. This upward momentum follows a roughly 1% rise on Friday, spurred by statements from influential Federal Reserve policymaker John Williams, who suggested that the bank could implement interest rate reductions “in the near term.” Consequently, market sentiment shifted, with a current estimated probability of around 60% for a rate cut in December, a significant increase from approximately 40% just days prior.
Despite this optimism, futures, which initially surged by about 1%, began to retract gains ahead of the U.S. market opening. Both the S&P and Nasdaq indexes are on track for their largest monthly declines since March, with the Nasdaq enduring a drop of over 6%. Concerns regarding inflated artificial intelligence valuations continue to weigh on market performance. Moreover, key economic data related to payrolls, retail sales, producer prices, and jobless claims—which are critical in shaping rate expectations—are due for release after the Fed’s December meeting. Boston Federal Reserve President Susan Collins has expressed skepticism regarding a rate cut in December, further complicating the outlook.
In parallel, the U.S. dollar experienced a slight decline, down 0.2% against a basket of currencies, while Treasury yields have remained stable following substantial drops in the previous week. Signs of fragile risk sentiment are evident as Bitcoin fell by 2% to approximately $86,000, rebounding from a significant low near the $80,000 mark.
Geopolitical developments, particularly the ongoing war in Ukraine, have also shaped market dynamics. The U.S. and Ukraine are reportedly working on a revised peace framework aimed at concluding hostilities with Russia, following a joint statement emphasizing modifications to a previous proposal deemed overly lenient toward Moscow. European defense stocks, despite significant gains year-to-date, saw a downturn on Monday, reaching their lowest levels since August.
Additionally, the anticipation surrounding the upcoming U.K. budget on Wednesday poses another point of interest. Finance Minister Rachel Reeves is expected to outline a credible financial strategy after previously reversing plans to increase income tax levels.
On a positive note, Italy recently celebrated a credit rating upgrade from Moody’s—its first in 23 years—offering a glimmer of fiscal optimism amid broader economic concerns.
As market participants brace for key developments, today’s events include a $69 billion U.S. Treasury auction and corporate earnings reports from companies like Agilent Technologies, Zoom, and others. The climate for U.S. stocks remains tenuous, particularly as they approach their worst monthly performance since March, amid a backdrop of increased geopolitical tensions and uncertain economic indicators.
