AI Rotation Plays Out in Sentiment for Indices

Indices: Tech Retreat Drags Broad Market Lower

US equity index futures are up slightly following last week’s action where the S&P 500 closed lower (w/w –0.7% to 6,827) due to Friday’s pullback and more so the tech-heavy Nasdaq 100 (w/w –2.2% to 25,196) amid ongoing rotation out of AI and growth stocks and into value, with the Dow 30 (w/w +1% to 48,458) a beneficiary and so too the small-cap Russell 2000 (w/w +0.8% to 2,551); Treasury yields ended higher on the mid to further end of the curve causing a steepening, while market pricing (CME’s FedWatch) shows expectations for a Fed on hold in the near term, with the first potential 25bp cut of next year a coin toss in March 2026

Stocks: AI Rotation is the Name of the Game

- Tough Friday for the semiconductor sphere, with shares of Nvidia (NASDAQ:NVDA) (-3.3%) extending their losses as investors continue to rotate out of AI-related stocks following Oracle (NYSE:ORCL) (-4.5%) and Broadcom’s (NASDAQ:AVGO) (-11.4%) weakness, despite the latter beating earnings and raising guidance and the former pushing back against reports of data center delays for OpenAI

- Major rebound for shares of Rivian, jumping 12% and undoing Thursday’s losses following its product reveal to end the week 5.4% higher, and enjoying price target hikes out of both Goldman Sachs and Needham

- Amazon (NASDAQ:AMZN) shares close 1.8% lower, failing to avoid the tech pullback, and where investors are noting the holiday catalyst

- Nasty session for share of Fermi plunged over 33% after losing a $150M funding deal for its AI-supporting power grid project

- Most Meme stock movers declined amid a risk-off sentiment and rotation toward value sectors: Beyond Meat (-7.6%), Kohl’s (-2.6%), Opendoor (-7%), AMC (-1.9%), GameStop (-2.9%)

- Crypto stocks track cryptocurrencies lower: Coinbase (-0.6%), MicroStrategy (-3.7%), Mara Holdings (-2.7%), Gemini Space Station (-11.8%), Bullish (-4.1%)

Commodities: Gold Tries to Make Its Presence Felt

- Gold rises to a seven-week high above $4.3K supported by the Fed’s 25-bps rate cut and ongoing uncertainty around further policy moves (see FX/Central Banks below), while silver sticks to the $62s as traders booked profits, with the gold/silver ratio rebounding off 66 lows back into the 69s

- Oil prices (WTI) remain below $58 per barrel after a bruising week as market participants contend with oversupply concerns and soft demand signals; weekly rig count data out of Baker Hughes shows number of US oil rigs rising by only one to 414; Russia’s Novak says they increased oil output last month

FX/Central Banks/Crypto: Mixed Fed member talk

- Bitcoin briefly breaks beneath its short-term bull channel and under $90K even as Strategy’s Saylor teases more BTC purchases; Ethereum shows modest recovery attempts above $3K but faces weak buying momentum keeping it range-bound

- US Dollar Index rises slightly to 98 after recent weakness, though even hawkish Fed talk wasn’t enough to help it avoid a successive red finish with the focus on tomorrow’s data dump, while sterling dipped following Friday’s GDP contraction (see Data below)

- Federal Reserve’s Goolsbee (dissenter) “pretty optimistic” rates will be a “fair bit lower” next year but “uncomfortable front-loading too many rate cuts” and can’t assume inflation will be transitory, Schmid (the other dissenter) was against a rate cut as little changed since their previous meeting where he also dissented, but Paulson more concerned about job risks relative to inflation and that the data on the economy are stale and Daly that she favored a rate cut; President Trump says Kevin Warsh is at the top of his list for next Fed Chair, and that he ought to consult with the president on rate decisions

- Unconfirmed Bloomberg report that the Bank of Japan sees hiking cycle likely extending beyond 0.75%

Capital.com Client Sentiment (w/w): AI Rotation Impact felt in Indices

- Indices: Just shy of extreme buy in the S&P (77% from 74% at the start of last week) largely due to last Friday’s pullback in price, with majority long sentiment also rising in the Nasdaq (heavy buy 73% from a moderate 60% last Monday) and Russell (69% from 66% a week ago) with the exception the Dow where buy bias dropped (to 59% from 63%) as it outperformed; elsewhere pullback in price sees long sentiment reach just shy of extreme buy in the Nikkie (77% from 71%) while push further within it in the Hang Seng (87% from 83%)

- Commodities: Falls out of extreme buy in gold (71% from 78% a week ago) due to the consecutive price increases while attempts at latching onto silver’s trend meant Friday’s pullback caused a jump in long bias (from 72% last Monday to an extreme buy 78%); in energy the pullback in WTI’s price has seen extreme buy sentiment reach staggeringly high levels (92% from 78% at the start of last week) and causing a shift in natural gas (from a majority short 63% a week ago to a heavy buy 70% at the start of this week)

- FX: Greenback weakness causes sentiment to shift in EUR/USD (from a slight buy 52% at the start of last week to a slight sell 54% at the start of this week), while traders opt to get in on GBP/USD raising buy sentiment there (from a slight long 52% a week ago to a moderate 61%)

CoT Speculator Sentiment (w/w, but Figures Are as of late November as CFTC Catches Up Due to Government Shutdown Delaying Report Releases Prior):

- Indices: Reman net sell in the S&P (62% from 63%), Russell (unchanged at a heavy short 71%) but not far off extreme short in the Dow (76% back when it was in retreat meaning you can expect the figure to move closer to the middle once the updated figures are released), while remain net long Nasdaq (heavy buy but only just at 65% from 67%) and reach extreme buy in the Nikkei (78% from 76%)

- Commodities: Extreme buy and holding in gold (at 82%) while raised further into heavy buy territory in silver (73% from 71%) while trimmed in WTI (71% from 73%)

- FX: Majority buy and rising in EUR (63% from 59%) but remaining heavy sell in GBP (71% from 72%), and moving closer to the middle in JPY (net long 55%, i.e., net short USD/JPY 55%)

Data: Disappointing Out of the UK and China

- Another -0.1% m/m contraction for the UK, this time for October, with the goods trade deficit for the same month widening to -£22.5bn from a previous -£18.9bn, while industrial production beats expectations at 1.1% vs -2% prior

- Chinese data release this morning shows retail sales disappoint up only 1.3% y/y for November from a previous 2.9% (and well below 3% expectations), industrial production shy of forecasts (4.8% vs 5%), fixed asset investment contract (-2.6%) YTD, the unemployment rate hold at 5.1%, and ongoing m/m new home price contraction (at -0.4% from -0.5% prior)

Today: Relatively Light Before Tomorrow’s Data Dump

- U.S. Empire’s manufacturing (5:30pm Dubai time), FOMC members speaking, NAHB housing market index (7pm)

This Week: Busy on Multiple Fronts, and Catching Up on NFP

- Data: A plethora of data out of the U.S. tomorrow including the delayed Non-Farm Payrolls, CPI on Thursday alongside the weekly claims, and UoM’s revised figures on Friday; UK labor data tomorrow followed by preliminary PMIs, pricing data on Wednesday, and retail sales on Friday; German ZEW sentiment tomorrow preceded by EZ preliminary PMIs, Ifo’s sentiment readings on Wednesday, and GfK’s consumer confidence on Friday

- Central Banks: European Central Bank on Thursday expected to hold on rates while the Bank of England is seen cutting to 3.75% earlier that day, and the Bank of Japan may hike rates on Friday

- Earnings: Micron (NASDAQ:MU) and General Mills (NYSE:GIS) on Wednesday, Nike (NYSE:NKE) and FedEx (NYSE:FDX) on Thursday, and Paychex on Friday