Cautious Hover as Market Hits a Key Hurdle, AI Fatigue Builds — Prepare for More Volatility Ahead

The stock market was almost immune to this week's Fed cut, as both the monetary outlook and Powell's remarks were broadly in line with expectations. The S&P 500 and Nasdaq 100 remain technically fragile, with Nvidia-led chip weakness weighing on sentiment despite the H200 approval news. As year-end approaches, major funds appear more conservative in their allocation, and investors should expect greater volatility from both a technical and fundamental standpoint.

Conclusion first, the stance is neutral to mildly bearish into year-end, particularly for tech. The Nasdaq 100 is still about 2% below its late-October peak, and the slowing MA(3,7,10) configuration suggests a potential double top. On the other hand, although the Russell 2000 hit a new high on Thursday, its RSI has climbed to 83—an extremely bullish level where an inflection often occurs. Meanwhile, Nvidia's muted reaction this week, even after Trump's green light for H200 exports to approved Chinese customers, adds further uncertainty.

Some may question why China's update did not lift Nvidia. The key reason is that large-scale shipments could take longer than expected, as Congress still needs to approve the framework, security assessments remain unresolved, and China's own purchase restrictions add further ambiguity. Broader doubts around China's economic recovery also outweigh a single policy headline.

More importantly, the fatigue reflects a shift toward caution in the AI trade. Many AI-related names are up double or even triple digits this year, and investors are taking a more risk-averse stance. Oracle's disappointing earnings and Google's expanding TPU push indicate that demand for AI chips may cool as competition intensifies. While AI spending remains substantial, returns are still trailing, reinforcing that hardware has been the primary profit engine. Investors are increasingly skeptical of the sustainability of cash-burning AI investments and question how long Nvidia's rapid growth and 70-plus % margins can persist, which could drag the entire semiconductor group lower.

Crypto also shows only a modest rebound. Bitcoin is holding above the 90,000 level, keeping a higher-low, higher-high structure, but momentum remains soft—especially post-Fed cut—implying lingering caution in broader sentiment. Any renewed slide could spark another wave of tech weakness, as both are still treated as high-beta assets. The cause of the October crypto downturn remains unclear, but the underlying stress has clearly not been resolved.

Despite the Fed's 25 bp cut on Wednesday and guidance for one more reduction next year, the overall message mirrors the September outlook, which explains the muted market reaction. The Fed did raise its GDP forecast for this year and the longer run, expecting growth to reach 2.3 percent next year. The unemployment rate is projected at 4.4 percent, slightly below this year's estimate.

However, the Fed may be overly optimistic. Critical data has been missing since the shutdown. U.S. employers announced 71,321 job cuts in November, a 24% jump year over year and the highest for the month since 2022, according to Challenger, Gray & Christmas . Total layoffs this year are already above the average of the last three years, signaling that the labor market is under more pressure than headline narratives suggest. AI accounted for only 6,280 cuts, implying replacement momentum remains limited. The current 4.4 percent unemployment rate reflects September conditions, reported before the shutdown, and the true picture may prove more severe than the Fed anticipates.

The missing month of data leaves everything uncertain. November CPI and non-farm payrolls will land next week, and volatility should be expected ahead of the releases. If the numbers miss expectations, further selling is possible. But if the Fed's view is correct, it would not be too late to turn bullish again, and the market could deliver a convincing technical breakout with more encouraging sentiment.

Overall, it is more of a "sell-the-fact" period as year-end approaches and AI names come off an extraordinary run. Technical signals still point to a bumpy path ahead, and investors are becoming more selective with allocation amid an uncertain macro backdrop. For now, tilting toward defensive positioning or holding cash until the outlook becomes clearer may be the prudent approach.