Unfortunately, the tech sector is spoiling the party: Bitcoin sank to $85K early this morning before regaining the $86K level. That’s far below its record high from earlier this year of $125K. “It’s beginning to look a lot like a crypto winter,” RBC’s daily morning email said.
More broadly, although the S&P 500 is up 16.5% year to date, “fears of an AI bubble remained prominent, with the Magnificent Seven losing ground [in November] for the first time since March,” according to a note from Deutsche Bank this morning.
Those fears took shape in the form of Morgan Stanley’s argument that hedge funds are effectively shorting Oracle’s AI debt by buying credit default swaps on its bonds (a type of insurance that pays out if a debtor defaults). Traders are becoming increasingly skeptical of the way AI companies are fueling their growth via debt rather than revenues.
There may yet be good news for stocks on the horizon, particularly if the U.S. Federal Reserve delivers that cut in December. Traders are now looking toward whether the Fed will cut again in January, emails from from ING and Goldman Sachs said this morning. Right now, CME FedWatch is showing a 21% probability of that happening. “We think the market will increasingly focus on the pricing of subsequent meetings,” George Cole and his colleagues at Goldman wrote. ”We think too little is priced in Q1.”
