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Last Updated: 14-Nov-25 09:09 ET | Archive
Shifting rate-cut expectations spur de-risking activity
Briefing.com Summary:
*The unwinding of the momentum trade is continuing.
*A downshift in December rate-cut expectations has created concerns about stretched valuations, particularly for high-beta stocks.
*The Trump administration is planning tariff exemptions for some products with the aim of easing food inflation.
There was an unwinding, or a "de-risking" as they might say, in the momentum stocks yesterday, and, yes, that includes the mega-cap stocks. Notwithstanding their massive market caps, they have been momentum stocks.
The de-risking, in our estimation, was precipitated by two principal factors that go hand-in-hand: 1) stretched valuations and 2) a downshift in December rate-cut expectations.
What was a near "sure thing" only a month ago in the fed funds futures market has now become the equivalent of a coin toss. The probability of a 25-basis-point cut at the December FOMC meeting to 3.50-3.75% sits at just 53.3% now (it dipped below 50.0% yesterday) after several Fed officials (Bostic, Collins, Hammack, Goolsbee, Kashkari, and presumably Schmid today) expressed reservations about cutting rates again before the end of the year.
High-beta stocks had been riding a wave of rate-cut expectations, helping to rationalize lofty valuations for these long-duration plays, but with the specter of a December rate cut not happening, investors are less reluctant to pay up for these stocks at lofty prices.
This unwinding is continuing this morning.
Currently, the S&P 500 futures are down 62 points and are trading 0.9% below fair value, the Nasdaq 100 futures are down 358 points and are trading 1.4% below fair value, and the Dow Jones Industrial Average futures are down 282 points and are trading 0.6% below fair value. The CBOE Volatility Index is up 12.9% to 22.57.
Traders will be keying on the depth of the pullback, which is going to lead to a retest of key technical support at the 50-day moving averages for the S&P 500 (6,704) and Nasdaq Composite (22,834). Those levels will be breached at the open. What will matter most, however, is if they are breached at the close. The 50-day moving average has not been violated on a closing basis since the recovery rally got going in April.
There is going to need to be a reversal of fortune for the mega-cap stocks if that streak is to stand today. They are all lower in pre-market action, with NVIDIA (NVDA) down 2.8%, Alphabet (GOOG/GOOGL) down 2.5%, and Tesla (TSLA) down 4.7%, to name a few.
Separately, leading chip equipment maker Applied Materials (AMAT) is down 6.5% following its earnings report and acknowledgment that revenue in 2026 is expected to be weighted toward the second half of the calendar year. Walmart (WMT), meanwhile, is another high-profile laggard. It is down 2.5% following the surprise announcement that CEO Doug McMillon will be retiring. John Furner, President and CEO of Walmart U.S., will take over as CEO effective February 1.
The weakness in the broad tape has overshadowed the news that Merck (MRK) will be acquiring Cidara Therapeutics (CDTX) for $9.2 billion, or $221.50 per share, in cash. That is a 109% premium over yesterday's closing price.
Speaking of prices, the Trump administration is working to lower prices on certain food items, having agreed to remove tariffs on some products from Ecuador, Argentina, Guatemala, and El Salvador.
Treasury yields have moved lower this morning. The 2-yr note yield is down three basis points to 3.56%, and the 10-yr note yield is down four basis points to 4.07%. While there might be some conjecture that these gains are being driven by the thought of lower food prices and some weak data out of China, the real impetus is safe-haven action as the momentum unwinding continues in the stock market.
