TheDrop Market Analysis, 12/01/25

Markets receded as investors ease their rally from last week regarding the potential for interest rate cuts in December.

The S&P 500 index fell 0.5%, while the Dow Jones Industrial Average fell 0.9%. The Nasdaq Composite avoided the most losses today, falling by a smaller 0.4%. However, the small-cap index Russell 2000 sank 1.3%, the most significant drop of the four main indices. The VIX volatility index rose sharply by 5.4%, as today's losses appeared to have been heavy shifts downwards in small amounts of time. Evidently, investors preferred a one-time selloff over a gradual holding strategy.

European stocks likewise fell as peace between the Russian Federation and Ukraine appeared to have advanced over the weekend, with both American and Ukrainian officials deeming the talks "productive." While this may seem contradictory, what drove down losses were European defense stocks, which have taken advantage of the Ukraine War to justify the higher demand for their products, in potential defense against an invading power. However, with such prospects seemingly disappearing, the necessity for military-grade equipment has dwindled. The FTSE 100 fell 0.18%, the DAX P fell 1.04%, and the CAC 40 fell 0.32%. In Asia, stocks had a slightly better time as the valuation of the Yen appreciated due to signs of an interest rate hike there, with the Japanese Nikkei surging to 0.4% as of 9:45 PM EST.

While Bitcoin and Ethereum fell, gold held firm as precious metals offer less risk than the rapidly depreciating cryptocurrencies, especially amid fears of an "AI Bubble." Bond markets surged as lower rates means higher demand for borrowing, with the 10-Yr Bond rate rising 1.97% and the 5-Yr Bond rate 2.03%.

Markets fell slightly as investors retain their optimism for a Federal Reserve interest rate cut (most likely a 25 basis points one) in December, though the rally already occurred, leading to some correction today. But some uncertainty emerged as President Trump finalized his decision on who he would replace current Fed chair Jerome Powell with. Investors are largely hoping for a pro-rate cut official to lead the central bank, with this being likely, as the incumbent president repeatedly advocated for massive interest rate reductions.

Nvidia rose 1.7% as it acquires a $2 billion stake in Synopsys, a chip design software maker, particularly tapping into the AI craze. Meanwhile, stocks in the Magnificent Seven which performed well last week did worse this week as they seek correction and are overshadowed by Nvidia's wins; Google fell 1.6%, Microsoft fell 1.1%, and Meta fell 1.1%.