Fed Rate Cut Can Deliver a Santa Rally. This Could Take It Away and 5 Other Things to Know Today.

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Investors have been fixated on the prospect of a Federal Reserve rate-cut next week but the stock market may be focusing on the wrong central bank.

The Bank of Japan has hinted at a rare rate-hike later this month, which would take the festive shine off December trading.

It was a rough start to the month on Monday, with stocks tumbling and Bitcoin feeling deep pain. Some on Wall Street blamed comments by Bank of Japan governor Kazuo Ueda, who suggested an interest-rate hike was coming on December 19.

A BOJ rate-hike is uncommon, as is the impact from another central bank on U.S. markets. The country had negative interest rates for almost a decade before finally bringing official borrowing costs to 0.5% in January.

Ultra-low rates in Japan have encouraged the country’s heavyweight investors to look for returns globally with a popular “carry trade,” where they borrow yen at low rates to invest in higher-yielding U.S. Treasuries.

Higher Japanese rates threaten to lure investors back home, seeing them sell Treasuries and push U.S. bond yields higher, as happened on Monday.

This comes at a bad time for American investors, who have been betting on the Federal Reserve to cut interest rates on December 10—futures markets imply odds of that near 90%—thus lowering bond yields and boosting stocks.

Yields could be in for a bit of a see-saw, and with the Fed in a quiet period ahead of next week’s rate decision, there are few voices to reassure investors of the positive outlook for stocks.

Alongside a relative absence of obvious market catalysts this week, there are risks that investors let nerves take over, and that would be a mistake.

While BOJ moves matter, they will take time to fully filter through to markets. The Fed, on the other hand, can deliver almost immediate relief to stocks if it cuts rates next week —and could even set up the fabled Santa Rally through year’s end.

—Jack Denton

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Nvidia’s Synopsys Stake Could Help Shake Competitive Concerns

Nvidia is taking a $2 billion stake in Synopsys, the largest provider of electronic design automation software used to design semiconductors, in a move that could help the AI chip giant shake off competition concerns. The arrangement could see artificial intelligence play a bigger role in industrial design and engineering.

• Nvidia faces growing competitive pressure, “leaning hard” on a variety of sales mechanisms to adapt, said Seaport Research analyst Jay Goldberg. He noted that Nvidia invested $6 billion in private companies this year with commitments for another $17 billion, not including a deal with OpenAI that could add $100 billion.
• Some of that competitive pressure is coming from Alphabet’s Google, which has Tensor Processing Units designed with Broadcom that are less expensive to use than Nvidia’s AI graphics processing units. Google stands to take market share as companies spend to build their AI platforms.
• Nvidia CEO Jensen Huang said the Synopsys stake harnesses Nvidia’s accelerated computing and AI “to reimagine engineering and design.” The arrangement isn’t exclusive, and both companies can work with other companies.
• Nvidia could argue that these investments in private companies will pay for themselves as companies raise outside money to buy Nvidia systems, Goldberg wrote. But the Synopsys transaction highlights that the scope of the effort “is growing considerably,” he said.

What’s Next: Nvidia and Synopsys will work together on AI engineering and developments related to physical AI. They see opportunities to connect the physical and digital worlds through virtual versions of real-life assets for industries including semiconductors, robotics, aerospace, automotive, energy, and healthcare.

— Adam Clark, George Glover, and Janet H. Cho

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U.S.-U.K. Drug Deal Is a Sign Tariffs Are Headed Lower

Monday’s preliminary agreement between the U.S. and the U.K. related to drug tariffs is the latest indication that the Trump administration may be losing latitude to impose tariffs, according to Veda Partners’ Henrietta Treyz. Analysts have been waiting for updates on possible sectoral tariffs on drugs and chips.

• The U.S. will exempt U.K.-origin pharmaceuticals, drug ingredients, and medical technology from sectoral tariffs, and the U.K will pay net 25% more for new medicines. The U.S. won’t target U.K. drug pricing practices in Section 301 trade-related investigations during President Donald Trump’s term.
• Sectoral tariffs are already in place against auto parts, furniture, and copper. But Treyz says Monday’s deal bolsters her view that drugs and chips may not see tariffs soon, especially as the administration grapples with the 2026 midterm elections. Treyz sees it as a material shift from the first quarter.
• The Supreme Court’s looming decision on the sweeping tariffs Trump imposed using emergency powers is also at play here. Analysts have expected the administration to lean more heavily on sectoral tariffs or Section 301 if the Court invalidates the so-called “reciprocal tariffs.” Treyz puts 65% odds on the Court going against Trump.
• The U.K. was the first to sign a trade deal with Trump. Treyz says it isn’t clear that Monday’s agreement means that others like India or South Korea still finalizing deals will get pharmaceuticals exempted or get tariff relief. India’s chemical exports could be a tariff target, she said.

What’s Next: Costco Wholesale has joined dozens of larger companies seeking to preserve a right to refunds for tariffs it already paid. It filed the case in the U.S. International Trade Court because refunds aren’t guaranteed. Just one-third of Costco’s sales in the U.S. come from imports.

— Reshma Kapadia and Anita Hamilton

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Energy Pipelines Are In a Building Boom. What Investors Should Know.

North America is in the midst of a record pipeline-building boom, with companies laying hundreds of miles of new pipes across the U.S. and Canada. Similar booms have led to messes in the past. A decade ago, pipeline companies got caught up when an oil bust caused producers to stop drilling.

• U.S. companies are spending big this year to move fossil fuels to the Gulf Coast for shipment overseas, and to expand natural-gas pipelines to serve power plants for new data centers. Northeast pipelines are expanding in a region where little fossil fuel infrastructure has been built in the past decade.
• In Canada, pipeline companies have built new routes to export fuel to Asia. In all, Parag Sanghani, a portfolio manager at Dallas investment firm Westwood Group, says companies are expected to plow $53 billion into growth projects this year, up from $49 billion in 2019, the prior peak.
• Much of the expansion is to supply the liquefied natural-gas terminals in Texas and Louisiana that are sending LNG to Europe and Asia. Kinder Morgan, which is building pipelines to supply those terminals, projects that U.S. natural-gas demand could jump by more than 25% above 2024 levels by 2030.
• Some of the pipeline expansion is being driven by data center expansions. Energy Transfer, for instance, is building natural-gas pipelines to three Oracle data centers, two of which are in Texas. Other companies, like Oneok, are looking to transport fuels like gasoline.

What’s Next: Oil prices are expected to stay low next year, which could weigh on pipeline company stocks. Sanghani thinks investors interested in the industry should focus on natural-gas pipeline companies over companies that transport oil or other liquids.

— Avi Salzman

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These Stocks Could Join the S&P 500 in Reshuffle

Four very different companies could be about to join the S&P 500 when the benchmark index undergoes a quarterly rebalancing this month. Any additions likely will be announced late Friday.

• Building materials company CRH, data-center equipment maker Vertiv, biotech Alnylam Pharmaceuticals, and alternative investment manager Ares Management are the top candidates for admission, according to a list drawn up by KBW analyst Shreyank Gandhi.
• The four companies are among the largest not in the S&P 500. S&P Dow Jones Indices, which oversees the index, often taps such corporations for additions. Other possible additions are Carvana, Ferguson Enterprises, Cheniere Energy, Coupang and Strategy based on their lofty market values. Another potential addition is SoFi Technologies, according to Gandhi.
• The S&P 500 index is rebalanced each quarter and that action is often accompanied by additions and deletions. There have been index changes at every rebalancing except one since the start of 2023. The only period without a change was the second quarter of this year.
• The minimum market value for new additions to the S&P 500 index is $22.7 billion. S&P Dow Jones Indices says little about why certain companies make it into the S&P 500 and reasons for those not making the cut assuming they meet index criteria.

What’s Next: Some companies won’t be celebrating come Friday. Companies with the smallest market values in the S&P 500 are vulnerable to getting demoted to the S&P mid-cap index or even the small-cap benchmark. The smallest members of the S&P 500 index now include Mohawk Industries, LKQ and Molina Healthcare.

— Andrew Bary

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Shopify Handles Cyber Monday Tech Snafu. Shoppers Flocked Online.

Online shopping helped drive success for retailers on Black Friday, so the optimism was running high heading into the biggest e-commerce day of the year, which is Cyber Monday. But some retailers using Shopify’s platform ran into snafus yesterday when it experienced tech issues. Shopify called it a partial outage.

• It warned that merchants may have trouble logging into point-of-sale and mobile platforms and reaching Shopify Support. Later, Shopify said it identified and fixed an issue with its login authentications and was “seeing signs of recovery.” Dozens of merchants had posted screenshots of login error messages during Cyber Monday.
• Adobe data suggests that U.S. shoppers spent about $30 billion online from Thanksgiving through Sunday, plus a record $14.2 billion on Cyber Monday, for a total weekend spend of more than $40 billion. In-store sales rose 1.7% on Black Friday, according to Mastercard SpendingPulse.
• Retailers were hoping to motivate price-sensitive consumers to spend early. Average online discounts were about 30%, Adobe said, above forecasts. Jefferies analyst Randal Konik said 53% of the 54 retailers it tracks increased promotions compared with last year.
• Dana Telsey, CEO of Telsey Advisory Group, said innovation in products and in-store entertainment helped stimulate demand over the weekend. Target lured shoppers with giveaways to the first 100 people as doors opened on Friday. Macy’s offered a few limited-time, in-store-only discounts on Friday.

What’s Next: The current pace of spending still points to solid growth, wrote Michael Baker, an analyst at D.A. Davidson, who maintained his forecast for total holiday sales—the period ranging from Nov. 1 through Dec. 31—to increase between 3% and 4% from last year, roughly in line with forecasts.

— Sabrina Escobar, Nate Wolf, and Janet H. Cho

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—Newsletter edited by Liz Moyer, Callum Keown, Rupert Steiner