The Federal Reserve's "market rescue" becomes a turning point! In the last week of November, various assets "rebounded strongly."
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After the turmoil at the beginning of the month, the financial markets staged a "rebound of everything" in the last week of November.
This week, as expectations for a Fed rate cut in December intensified, virtually all asset classes—including US stocks, US Treasuries, commodities, and even cryptocurrencies—rose in tandem, sweeping away previous concerns over an AI bubble and economic growth.
(Performance of US benchmark stock indices in November: The S&P 500 rebounded from a sharp mid-month decline and ended roughly flat.)
The key turning point in the reversal came last Friday. As reported by Wallstreetcn, New York Fed President Williams made dovish remarks, pushing the market’s expectation for a December rate cut probability from about 30% to over 50%. Subsequently, “Powell’s allies” spoke out one after another in support of a rate cut, further driving December rate cut expectations up to 80%.
(Green line: Probability of Fed rate cut in December VS Blue line: Probability in January next year)
Analysts believe that although the internal structure of global assets is still being adjusted, ample liquidity provides a solid bottom for risk assets and effectively blocks the potential for systemic declines.
"Rebound of Everything" Sweeps the Holiday Week
During Thanksgiving week, the market shed the unease of previous weeks and delivered one of the strongest cross-asset rallies of the year.
Even though CME briefly halted trading on Friday due to a data center failure, the upward momentum was undeterred. Specific performance this week included:
The S&P 500 surged 3.7% for the week, marking its best weekly performance in six months and also the best Thanksgiving week since the Lehman crisis in 2008.
(S&P 500 posts its best Thanksgiving week since 2008)US Treasury prices rose and the yield on the 10-year Treasury briefly fell below the key psychological threshold of 4%.Bitcoin rebounded more than 7% from its November low, climbing back above $90,000, signaling a notable revival in market risk appetite.The Bloomberg commodity index rose more than 2% during the week, and spot silver and copper both broke historical highs.
The dramatic reversal in market sentiment stems from strong expectations of a Fed policy shift.
Among them, last Friday’s dovish remarks by New York Fed President John Williams were seen as a critical inflection point. Blake Gwinn, US rates strategist at RBC Capital Markets, commented:
The market largely interpreted Williams’ comments as Powell showing his hand.
This week, Emmanuel Cau, strategist at Barclays, commented:
The lesson this week: don’t fight the Fed, don’t fight AI, this is still the market’s motto.
He pointed out that as December rate cut expectations rose, stocks and all liquidity-driven markets rebounded.
A JPMorgan client survey also showed that investors’ net long position in US Treasuries has reached its highest level in about 15 years.
Previously, concerns over AI valuations sparked market volatility, but news of Google parent Alphabet releasing its latest AI model and TPU chip restored confidence in the innovation cycle of major tech companies.
This month, Nvidia was the worst-performing stock in the “Magnificent Seven” tech index, with a monthly decline of about 13%, its worst monthly performance since December 2022. Google, on the other hand, performed strongly.
(Google performed strongly in November, leading the Magnificent Seven tech stocks)
Foreseen: Tightening Liquidity Forces Policy Shift
Even before this round of rebound, some analysts had predicted that the Fed might be forced to pivot.
As reported by Wallstreetcn, Bank of America Chief Investment Strategist Michael Hartnett noted in an earlier report that tightening liquidity has impacted multiple asset classes such as cryptocurrencies and credit, sending signals similar to the market conditions of December 2018, which may force the Fed to shift toward easing policy.
Hartnett argued that the cryptocurrency market is the “canary in the coal mine” for sensing central bank policy shifts, and has the keenest sensitivity to liquidity.
He predicted that assets such as Bitcoin would already start to surge before the central bank’s “bailout” signal is fully realized. The recent rebound in cryptocurrencies from their lows seems to confirm his view.
According to Hartnett’s analysis, global central banks’ cumulative rate cuts over the past two years have triggered a liquidity feast, directly fueling the AI investment craze and cryptocurrency speculation. When markets come under pressure from tightening liquidity, it will ultimately force the Fed to “capitulate” on policy and start a new rate cut cycle.
Bottom Support: Ample Liquidity Builds “Safety Net”
On a deeper level, the fundamental reason for the market’s rapid rebound lies in an abundant liquidity environment.
As reported by Wallstreetcn, according to Bloomberg macro strategist Simon White, although US stocks saw a pullback in early November, with the “dual put option” support from the US Treasury and the Fed, a bear market is hard to form.
White explained that the so-called “fiscal put” means the Treasury is injecting liquidity into the market through specific debt issuance strategies, countering the Fed’s quantitative tightening.
Meanwhile, a key global liquidity indicator—“excess liquidity” (the portion of real monetary growth in G10 countries, measured in USD, that exceeds economic growth)—is currently in positive territory.
Historical data shows that when this indicator is high and rising, the downside for stocks is effectively limited.
Therefore, White believes that currently abundant liquidity has built a “safety net” for risk assets. While this does not mean the market will immediately launch into a “roaring bull market,” it implies that the likelihood of it turning into a “ferocious bear” is very small.
Analysts believe that for investors, this means that although short-term bumps are inevitable, the probability of a systemic crash is extremely low.
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