The Stock Market Needs December Magic to Keep Tech Rebound on Track

Wall Street traders likely are counting the days until they can say good-bye to a pretty horrible November slump. (Spencer Platt/Getty Images)

Key Points

• The S&P 500 has fallen nearly 2% and the Nasdaq Composite has tumbled 3.6% since the start of November.
• Analysts suggest the market’s recent pullback is a healthy correction, not the start of a deeper downturn.
• Historical data indicate that a November pullback after a 10-month rally often precedes average December S&P 500 gains of 4.1%.

Wall Street could be forgiven for wanting this November, one of the weakest Novembers for the stock market since 2008, to come to an end rather quickly.

The S&P 500 , after all, has fallen nearly 2% since the start of the month, with the tech-focused Nasdaq Composite slumping 3.6%—even counting today’s 600-plus point rebound, the best since May. The market’s benchmark volatility gauge, the VIX, has surged nearly 20% and Bitcoin has plunged more than 20%.

Even a set of blowout third-quarter earnings from Nvidia , which included a demand outlook that should have quelled concerns over a bubble in artificial-intelligence investment, failed to boost markets for more than a few hours.

“A short-term pullback in the broader U.S. equity market has been long overdue for a number of reasons, in our opinion, despite our constructive view on the year ahead,” said Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets.

“Investors are questioning whether financial markets have run too far too fast and whether too much risk has been taken on” since this year’s rally began in early April, she added.

Stocks powered higher on Monday, however, opening the first session of the holiday-shortened week (Thanksgiving is Thursday) with solid gains tied to a fresh record high for Google parent Alphabet and an $870 billion rebound in Nvidia. But investors are likely looking ahead to December, a seasonally strong month that could reset the current bull market heading into 2026.

“The S&P 500 is back on a slower track than the fast track it was on from April 9 until the end of October,” said Ed Yardeni, president and chief investment strategist at Yardeni Research.

“What has changed is that, while the AI bubble isn’t bursting, it is losing some air,” he added. “But that’s actually a positive development for the sustainability of the current bull market, which began on Oct. 12, 2022.”

A history of solid gains in December should also provide support, particularly given the market’s notable November retrenchment.

Data from Bank of America, in fact, indicates that each time a 10-month rally of 10% or more was blunted by a November pullback, S&P 500 gains for December averaged around 4.1%.

David Laut, chief investment officer at Kerux Financial in Granite Bay, Calif., also thinks the November pullback “paves the way for a market rebound in December.”

“Many of November’s fears about AI and a cratering job market have ended up not coming to fruition, which suggests that we are seeing a traditional market pullback in recent weeks and not the start of a deeper correction,” he said.

A few things this week, and the Federal Reserve’s next interest rate decision in early December, likely will either support that view or provide a firm test to bullish conviction over the final weeks of the year.

Consumer sentiment over the Thanksgiving holiday, and the willingness to spend and travel even amid the sustained weakness in the labor market, will provide a crucial reading of the strength of the domestic economy. The Census Bureau’s delayed report on retail sales in September, due Tuesday, also will be closely tracked.

“Retail sales are forecast to have posted a large increase in September, as consumers rushed to purchase EVs before the expiry of tax credits at the end of that month, but core retail sales likely increased at a more moderate pace,” said Bill Adams, chief economist at Comerica Bank in Dallas.

“The report on GDP for the third quarter originally scheduled for this week is delayed due to the government shutdown,” he added.

A Fed rate cut, meanwhile, alongside the central bank’s plans to stop selling bonds from its $6 trillion balance sheet into the markets starting on Dec. 1., should support broader market liquidity and feed appetite for risk assets.

“After last week, it’s hard to call a bottom to the correction,” said Louis Navellier of Navellier Calculated Investing. “But if the better bets on a December Fed cut come through, we will likely have a material rebound in December.”

Write to Martin Baccardax at martin.baccardax@barrons.com