What’s Ailing The Bull Market?

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Last week’s modest pullback came with unusually sharp headlines - “biggest tech selloff since October,” “rate cut odds plunge,” and “AI debt warning.”

But the volatility isn’t about a single headline. Instead, it’s a convergence of shifting Fed expectations, conflicting economic data, and signs of fatigue in the AI-led rally.

With monetary policy in flux, October data potentially compromised, and credit markets signaling concern, investors are growing more cautious about the possibility of a deeper correction—despite November’s reputation as one of the market’s strongest months.

Let’s ask and answer the obvious questions.

• Is It Fear the Fed Won’t Cut Rates in December?
• Is It Inflation Worries—From the Fed to the Consumer?
• Is It Signs the Job Market Is Weakening?
• Is the AI Data Center Boom Losing Steam?
• Are Investors Overreacting to Normal Volatility?

 

Is It Fear the Fed Won’t Cut Rates in December?

The market has clearly become more concerned about the December Fed meeting. The odds of a December rate cut have fallen sharply—dropping from over 100% a month ago to under 50% last week.

Chair Powell said he wanted more uncertainty about the December rate cut and this repricing has been fueled further by a coordinated set of hawkish Fed remarks. Boston Fed President Susan Collins warned that it will “likely be appropriate to keep policy rates at the current level for some time,” while Cleveland’s Beth Hammack reiterated the need to remain “somewhat restrictive.”

The stock market will likely be unhappy if December doesn’t deliver a cut, but at least now, such a move would not be as shocking.

Is It Inflation Worries—From the Fed to the Consumer?

The inflation narrative is evolving, not fading. Bond markets didn’t rally during the recent equity selloff—instead, long-duration yields moved higher after a weak 30-year auction, spilling into corporate credit. That pushback from debt markets suggests inflation concerns are still embedded in the system.

One growing—and problematic for many reasons—source of inflation concern is actually AI itself. The U.S. is home to over 4,000 data centers—more than any other country—and the spending on new data centers is climbing rapidly as shown in the chart below.

With demand for AI infrastructure accelerating, the expansion of power-hungry facilities is expected to continue at a pace few utility grids were designed to handle.

U.S. data centers consumed 183 terawatt-hours of electricity in 2024—already 4% of total national usage—and are projected to more than double by 2030. Rising demand is driving utility bills higher, with the average U.S. household now paying $142 per month, up 25% from a decade ago.

Construction costs are also surging, with the average price per square foot reaching $977 in August, up from $665 a year earlier.

It’s Not Just Data Centers

Even the President who said the isn’t inflation a few weeks ago,  decided last week to encourage prices in decline in important areas like groceries.

The administration pivoted toward “affordability” messaging and announced it would ease tariffs on groceries—an implicit acknowledgment that policy may be contributing to cost pressures.

Is It Signs the Job Market Is Weakening?

Despite strong consumer spending data—October’s numbers showed a 3.5% year-over-year increase—investors are starting to question how long that strength can hold. The underlying concern isn’t about demand, but about the stability of the job market that supports it. While higher-income households continue to benefit from stock market gains and housing wealth, early signals of labor market stress remain a problem.

Verizon announced plans to cut up to 20% of its workforce—approximately 20,000 jobs—a move that suggests companies are looking to reduce costs as they approach the limit of what consumers will tolerate in terms of pricing.

The softening isn’t just anecdotal.

• According to Challenger, Gray & Christmas, U.S. employers announced 153,074 job cuts in October 2025—the highest tally for that month since 2003. Warehousing and technology were among the hardest hit, with 47,878 and 33,281 cuts respectively.

• For younger college graduates, the pressure is even more acute: the unemployment rate for ages 20–24 with a bachelor’s degree hit 9.3% in August (not seasonally adjusted).

Additionally, in the hardest hit segment of the labor market—college graduates ages 20–24—most of the unemployed have never held a job. As a result, this area of unemployment doesn’t show up in jobless claims data, which still appears “ok” on the surface.

All of this is being compounded by a more systemic problem. Due to the recent government shutdown, October’s employment data is incomplete. The Household Survey—used to calculate the unemployment rate—wasn’t finished, and the CPI report may also be compromised.

As a result, policymakers are operating in a “data desert,” with the White House warning that the missing October data will be “permanently impaired.” For the Fed, that means flying blind

It was Chair Powell who suggested “walking slowly when you enter a dark room.”

Is the AI Data Center Boom Losing Steam?

The AI narrative has been a major driver of market enthusiasm, but recent developments suggest a more cautious tone may be setting in. There is a growing narrative that the spending should be reassessed through the lens of debt, execution risk, and tightening credit.

You don’t have to look far to find issues…

Oracle’s long-term debt—already at $96 billion—is projected by some analysts to nearly triple to $290 billion by 2028.

This is more “interesting“ when you consider the chart below.  Its 30-year bonds have dropped from 106 at its last earnings report to 92, a new low for the year. The market appears to be questioning whether AI investments are being fueled more by leverage than by profitability.

This skepticism isn’t isolated. High-yield borrowers like Applied Digital, which is linked to CoreWeave, recently had to offer a 10% yield to move bonds—raising concern that risk appetite in the credit markets is drying up. These widening spreads are being viewed as a “canary in the coal mine” for the broader tech sector.

Execution risk is also rising. Microsoft CEO Satya Nadella highlighted a bottleneck that’s slowing deployment: data center shells aren’t being built fast enough to house the chips already in inventory. That physical constraint is a reminder that growth in AI infrastructure still depends on old-world logistics and permitting.

Earnings reflect the mixed signals. Applied Materials reported another quarter of declining sales and flagged continued weakness tied to export restrictions. That said, after opening 10% lower on the news, AMAT rallied immediately and closed higher for the day.

On Tuesday, CoreWeave missed its Q4 targets due to data center construction delays and dropped 16% that day, with the decline continuing every day for the rest of the week.

On the other hand, AMD projected its AI data center revenue will grow 80% annually for the next several years, and Cisco raised its outlook based on Nvidia-related demand.

The AI bull market is far from over, and it’s healthy to have significant corrections. Currently, the correction is one that is demonstrating rotation rather than broad, indiscriminate liquidation.

So Are Investors Overreacting to Normal Volatility?

Despite the headlines, the recent pullback has been relatively mild. The lowest point in the recent pullback in the S&P 500 was down about 4% at its lows.

As you can see from the dotted line that represents -4% from the all-time high, this is a normal and necessary level of volatility.

The seasonal tailwind of November may still kick in, but even if it doesn’t, corrections in the 5% to 15% range are entirely normal—even healthy.

 

 

 

Every week we review the big picture of the market's technical condition as seen through the lens of our Big View data charts. The bullets provide a quick summary organized by conditions we see as being risk-on, risk-off, or neutral.  The video analysis dives deeper.

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Market Summary

• Markets showed mixed-to-weak breadth this week as major indexes declined, volume skewed toward distribution, several “Modern Family” members slipped into warning phases, and sector performance leaned risk-off. While value, growth, and foreign equities remain in bull phases, internal metrics such as volatility, high–low ratios, and color charts point to a neutral-to-softening environment as Bitcoin and key risk-on sectors (tech, semis, discretionary) weakened, though Friday’s price action saw a similar end-of-week reversal as last week. 

Risk On

• Both value and growth remain strong and in bull phases, though threatening a degradation in phase in growth. The ratio between them is about even. (+)
• Foreign equities continue its positive trend with new weekly highs in developed markets and both emerging and developed markets firmly in a bull phase. (+)

Neutral

• Markets were mixed ranging from the QQQ’s up +0.49% to Russel down -1.71%. IWM closed back into a weak warning phase. (=)
• Volume patterns were more mixed, but every major index had more distribution days than accumulation days, particularly NASDAQ. (=)
• Market internals still skewed slightly negative, but improved over last Friday’s close, particularly in up/down volume. (=)
• The new high low ratio bounced off of last week’s lows and stabilized a bit in the mid-range. (=)
• For the color charts (moving average of stocks above key moving averages) remains weak, particularly in Nasdaq and IWM, though the S&P showed relative improvement from last week’s lows. (=)
• Risk gauge is back to neutral due to slight strength in gold. (=)

Volatility back into neutral territory, off its peak, but remains elevated from its fall lows. (=)

• The modern family remains mixed with some weakness in retail and small caps, though semiconductors are hanging onto a bull phase and biotech continues its strength. (=)
• Gold eked out a positive week and remains in a strong bullish trend, though the price action over the last couple weeks has been sloppy. (=)
• Rates have remained strong post-fed decision with the December rate cut probability sitting at 50% (down from 95%). (=)
• November is one of the strongest seasonal months, though the early month hasn’t panned out and the seasonal trend tends to slow into the latter half of the month. (=)

Risk Off

• Sectors showed a strong risk-off bias with most sectors down, and semiconductors, technology, and consumer discretionary leading the way down. Biotech and healthcare were the best performing sectors, up noticeably +3-4%. (-)
• Bitcoin continued its downward trend from the new all-time high it put in early October, now, breaking decidedly under its 200-Day Moving Average with unclear support levels. It could test some support around the $80k level. (-)

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Actionable Trading Plan

1. Equity Index Positioning

Core Bias: Neutral-to-light-risk-off tilt.

• Reduce equity exposure by 10–20% from full allocation due to distribution-heavy volume, weakness in IWM and QQQ, and mixed internals.
  
• Maintain exposure in S&P (SPY) only if it holds above its 50-day moving average; cut remaining exposure if SPY closes two days below it with expanding volume.
  
• Avoid adding to small caps (IWM) until it closes back over its 50-DMA and exits the weak warning phase.
  

2. Sector Rotation / Tactical Trades

Favor defensive growth + laggards showing improving momentum; avoid high-beta leaders.

Overweights / Buys

• Biotech (XBI / IBB) – strongest sector; buy pullbacks into 10- and 21-day MAs with stops 3–5% below entries.
  
• Healthcare (XLV) – steady relative strength; add above recent pivot highs with a 2–3% stop.
  

Underweights / Avoid

• Semiconductors (SMH) – despite long-term bull phase, the sector is leading to the downside; avoid new longs until a bullish reversal day appears.
  
• Tech (XLK) and Discretionary (XLY) – stay light; both are showing decisive risk-off behavior.
  
• Retail (XRT) and Small Caps (IWM) – avoid longs until phases improve.

3. International Equities

Continue overweight but tighten risk.

• Developed and emerging markets remain in bull phases — maintain positions but raise stops to recent weekly lows.
  
• Add only if foreign ETFs make fresh weekly highs with strong volume confirmation.

4. Bitcoin / Crypto Positioning

Treat as risk-off until proven otherwise.

• Bitcoin breaking under the 200-DMA shifts it to a sell or avoid stance.
  
• Lighten any remaining crypto exposure, and only rebuild if BTC can reclaim the 200-DMA on strong volume.
  
• If BTC falls to the $80k support zone, watch for a reversal but avoid anticipating it.

5. Rates / Macro Risk Management

• With December cut odds collapsing from 95% → 50%, rate-sensitive areas (tech, discretionary, IWM) are at elevated risk.
  
• Avoid leverage in growth-heavy portfolios until Fed expectations stabilize.

6. Seasonality Considerations

• November tends to be strong, but mid-to-late November historically softens.
  
• Treat any bounce from seasonality as a tradeable rally, not a trend re-acceleration, unless internal breadth improves.

7. What Would Flip the Plan to Risk-On?

Only increase risk if these conditions occur together:

1. IWM closes back above the 50-DMA with improving phase.
   
2. QQQ prints an accumulation day that surpasses the recent distribution days.
   
3. New high–low ratios move above mid-range.
   
4. Volatility drops back into a confirmed bear phase.
   

8. Stops, Sizing, and Risk Controls

• Keep individual position risk at 0.5–1.0% of portfolio equity.
  
• Tighten trailing stops across all equity positions.
  
• No leveraged ETF exposure until internals improve.