To The Moon

$S&P 500(.SPX)$

A Volatile Month Ends With a Sudden Surge

November delivered a sharp wakeup call to an otherwise resilient market. The S&P 500 fell about 2% for the month, marking its worst performance since March and a clear signal that investor confidence had weakened. Volatility surged across equities, bonds, and currencies, pushing traders to reassess their risk appetite heading into year-end.

Yet just as markets appeared to roll over, investors witnessed one of the most dramatic rebounds of 2025. In mere days, the S&P 500 recovered more than $1 trillion in market capitalization, flipping sentiment from fear to cautious optimism. The question now is whether this sharp rebound reflects a genuine turning point—or a fragile, liquidity-driven bounce that may not last.

Wall Street’s Wealthiest Are Still Buying

Even amid broader weakness, one corner of the market has shown resilient conviction: high-net-worth investors. According to Citi’s Head of Wealth Management, the bank continues to see record inflows from wealthy clients, suggesting that sophisticated portfolios still believe the bull market has runway.

This stands in stark contrast to the broader public, where fear has been building for weeks. Retail participation has dropped, ETF inflows have slowed, and options hedging has intensified. The divergence between wealthy investors and the masses highlights a growing uncertainty about the true direction of the economy—and whether the market is underpricing potential risks.

Still, Citi’s statement that equities have “some room to run” was enough to brighten sentiment, especially when paired with the sudden shift in monetary expectations.

The Friday Shock: Fed Liquidity Intervention Reverses Markets

Last Friday delivered a market shock that few saw coming. Early in the session, weak macro indicators pushed expectations toward a possible December recession scare. Treasury yields spiked, futures fell sharply, and traders braced for a continuation of the month’s decline.

Then, without warning, the Federal Reserve executed a temporary liquidity operation aimed at calming short-term funding stress. This unexpected intervention immediately reversed market momentum, flipping equities from deep red to solid green within hours.

The reaction was instant and forceful:

• Treasury yields fell sharply

• The dollar weakened

• Risk assets surged

• Short covering accelerated

• Dealers flipped from hedging to buying

This single action triggered one of the largest intraday sentiment reversals of the year and set off a powerful rebound that added over $1 trillion in equity value.

Why This Intervention Matters Right Now

The timing of the Fed’s move is significant. Throughout 2025, the central bank has attempted to normalize financial conditions without sparking a liquidity crunch. Yet stresses within the Treasury market, combined with slowing growth data, have made that balance increasingly difficult.

This is why investors interpreted the action as more than a one-day liquidity patch—it was viewed as a signal. A hint that the Fed may be closer to shifting away from its most aggressive tightening posture.

The most important piece of this puzzle is the expectation that the Federal Reserve will end quantitative tightening (QT) as early as December. If confirmed, this would instantly become one of the most supportive liquidity events in two years.

The End of QT: A Potential Game-Changer

QT has been a major component of the equity market’s headwinds since 2022, draining liquidity from financial markets and contributing to higher long-term yields. A formal end to QT would have several far-reaching implications:

• More stable banking reserves

• Greater liquidity in Treasury markets

• Lower volatility in funding markets

• Reduced upward pressure on yields

• Improved environment for equity multiples

In other words, it would remove one of the biggest macro drags on risk assets. The market’s reaction last week suggests that traders are beginning to price in this shift early, ahead of the official announcement.

This liquidity tailwind—combined with thin positioning—creates the conditions for a strong year-end rally.

Will This Week Be a “Mindless” Rally?

Despite the optimism, there is a growing concern that this week could bring what some traders call a “mindless rally”—a low-liquidity, momentum-driven surge fueled more by technical factors than fundamentals.

Several technical elements support this possibility:

1. Dealer Gamma Positioning

Rising markets force options dealers to buy more, amplifying upside moves.

2. Light Positioning After November’s Sell-Off

Many funds had de-risked significantly, increasing the probability of a sharp snapback.

3. Large Options Expiries Approaching

Hedge unwinds and delta adjustments can artificially boost markets.

4. Thin Liquidity Conditions

Small bursts of buying have an outsized impact during holiday periods.

These technical forces can create powerful but potentially unstable rallies that run ahead of economic reality.

The Market’s Crossroads: Bullish or Bearish Signals?

The current environment presents a rare overlap of both bullish and bearish indicators. Each side has credible arguments.

Bull Case: Liquidity and Positioning Favor Upside

On the bullish side, several catalysts stand out:

Liquidity Inflection Point

The expected end of QT dramatically improves conditions for risk assets.

Smart Money Buying

Record inflows into wealth management accounts indicate high-conviction demand.

Seasonal Strength

December and early January are historically strong months for equities.

Fed Pivot Narrative Gains Traction

Even a small shift in tone from the Fed can lead to significant repricing.

Together, these factors create the backdrop for a sustained rebound—provided macro data does not deteriorate sharply.

Bear Case: Fundamentals Are Still Weak

However, the bear case remains equally credible:

Market Breadth Is Poor

Outside of AI mega-caps, performance has been deteriorating for months.

Economic Data Softening

Growth indicators are weakening, raising fears of stagnation.

Earnings Revisions Turning Negative

Analysts continue trimming 2026 profit expectations.

Liquidity Rally ≠ Fundamental Strength

The rebound may simply be masking underlying fragility.

If fundamentals fail to stabilise, any liquidity-driven rally could fade quickly.

Dead Cat Bounce or Real Rally? What to Watch

The market’s next decisive move will hinge on a handful of critical indicators. To determine whether this rebound is genuine, investors should monitor:

1. Market Breadth

A real bull phase requires participation beyond the top 10 stocks.

2. Treasury Yields

If yields stabilize below resistance, equities gain breathing room.

3. Earnings Momentum

Upward revisions would signal a healthier economy.

If these indicators turn positive, the recent rebound could evolve into a durable rally. If not, the market likely retests the November lows.

So, Are We Bullish or Bearish From Here?

At this stage, the most realistic stance is a balanced one:

Short-Term: Bullish

Momentum and liquidity support upside, particularly if QT ends in December.

Medium-Term: Neutral to Cautious

Earnings headwinds and narrow market leadership remain unresolved.

Long-Term: Dependent on Growth Stability

A sustainable bull market requires broad participation and improving fundamentals.

In short: the rebound has legs—but only for now.

Final Verdict: Participate, But Stay Hedged

The recent recovery offers attractive short-term opportunities, but investors should avoid overexposure. While the liquidity backdrop is improving, the fundamental picture is too mixed to justify aggressive bullish positioning.

A disciplined approach works best here:

• Ride the upside in strong sectors

• Maintain hedges through options or defensive allocation

• Avoid chasing overextended tech leaders

• Favor quality, cash-rich companies

• Be ready for volatility if macro data disappoints

This is not yet the environment for a full-risk, all-in strategy. It's a market that rewards tactical plays and punishes complacency.