Stocks staged a healthy rebound on Monday as December rate cut odds shot up to 80% and the AI narrative stabilized. Fed expectations repriced after Waller and Daly delivered dovish remarks. BxC is trying to bounce, and the CN-X/Trump call (including discussion of an April G2 meeting in CN) is helping sentiment. With QT set to conclude, the Fed will begin reinvesting MBS paydowns into T bills, coupled with reserve management purchases to maintain a stable level of ample reserves. We talked about how the Fed would eventually set its monetary policy to an accommodating level to help with the U.S. debt problem. This is expected.
The GEMINI 3 release, and the fact that a large portion of the model was trained on GOOGL343.50's own AI chips (TPUs), which the company is now in talks to sell or rent to others, triggered clear dispersion between OpenAI linked names and GOOG ecosystem beneficiaries across both the US and Asia. The tape was very interesting yesterday as we saw both ES1!7,780.318 and NQ1!31,012.783 rally hard, break through several key resistance levels and finally get stopped at the SPX7,722.72 50D MA. Both ES and NQ are now in bull territory, and NVDA235.20 broke through the 181 key resistance intraday yesterday and closed above it. It is also important to note that ORCL142.58 and META726.92 managed a solid rebound yesterday after leading to the downside since the start of November. SPX 50D MA (ES = 6730) is the last line of defense for the bears. If the bulls can close above it, we should get another up leg into year end.
There is one caveat, however, which is that NVDA was sold sharply premarket and is once again trading below the key support level due to competition from Google on its chips (NVDA down ~4, Google up ~4). The market cap difference is now only 4% away from Google overtaking NVDA's throne. If that happens, and Google manages to hold its position for a while, NVDA's price drop will no longer threaten our bull thesis. Even if NVDA trades below our key support zone, Google could lead the market higher into year end. But that remains to be seen, as the market has focused almost exclusively on NVDA for the past three years. SPX 50D MA could act as ST resistance given that the market rebounded from its 100D MA. I expect more choppy tape in the short term.