Summary The S&P 500 experienced a sharp intraday reversal, driven by leveraged unwinding in crypto and tech, not the disappointment in Nvidia's results. Despite negative sentiment and recent volatility, economic fundamentals remain strong, with robust consumer spending and steady real wage growth. The recent market pullback is viewed as a healthy reset, setting the stage for a year-end rally and sector rotation into value-oriented stocks. Current fear levels and oversold conditions suggest a market bottom is near, presenting a buying opportunity ahead of anticipated gains into 2026. The bull was back at yesterday’s open for the first hour of trade until being summarily dismissed by a wave of selling that started in the cryptocurrency space and spread like wildfire through the rest of the market. The 1.4% gain for the S&P 500 index at the open turned into a 1.6% loss by day’s end in the largest intraday swing since the market bottomed in a tariff tantrum last April. While the bears seem invigorated, I don’t think the swing reflected disappointment in what were stellar results from Nvidia. Instead, it looked more like the massive unwinding of leveraged bets on crypto, led by Bitcoin, which began its descent in mid-October from $125,000. That may continue today until the leverage clears, but bears will use it to argue the economy is in trouble and the bull market may be at risk, as many have been doing unsuccessfully for the past three years. Finviz It is no coincidence that the technology sector and many of the most expensive momentum growth stocks were the hardest hit yesterday, as well as over the past three weeks. The same lot that is levered in the crypto space, predominantly retail investors, is likely levered in these names as well. Therefore, when Bitcoin suffers a bear market decline of 30%, it forces the unwinding of leverage in everything else these speculative investors own. Of course, the selling has been compounded by fears of overvaluation in the tech sector and concerns about a bubble in AI. Once this clears, like a nasty case of the flu, investors should refocus on the economy, which continues to defy the naysayers. Bloomberg Despite a trade policy that has upended the normal course of business for the past seven months, the economy continues to rebound from its first half slump. The Atlanta Fed’s GDPNow forecaster sees growth in the third quarter running at 4.2%, led by a 3.4% growth rate in consumer spending, which accounts for more than two-thirds of our economic output. Consumers have been saying one thing with sentiment at all-time lows, while doing others, as in spending on goods and services. While we have not had the government’s data the past six weeks, I have noted that the private sector’s Redbook Same-Store Sales Index continues to report strong sales growth, as we saw in this week’s annualized growth rate of 6.1%. That was the strongest in four months. The PMI reports for October and November indicated softer but still above trend growth rates for the fourth quarter. Atlanta Fed Yesterday’s employment data for September was encouraging, as the economy added 119,000 jobs, but the prior two months saw downward revisions of 33,000. The sectors creating jobs narrowed to just healthcare and leisure and hospitality, while the unemployment rate edged up to 4.4%. Wage growth held steady at 3.8%, which means that workers are still realizing real wage growth, as the rate of inflation hovers close to 3%. That is the key to real consumer spending growth. This is dated information, and I suspect October’s report will be a grimmer picture, but weekly unemployment claims are not rising meaningfully. This is still a limited hire and limited fire labor market, but it’s a wake-up call to the Fed to act in December. I still expect a rate cut at the December 10 meeting. Trading E conomics The S&P 500 has now officially completed a pullback of 5.1%. The Nasdaq Composite surrendered 7.3%, and the Nasdaq 100 ( QQQ ) fell 7.4%. Lastly, the Russell 2000 index ( IWM ) is down 8.5% from its all-time high. I see this as nothing but a positive reset from which to start a year-end rally characterized by sector rotation from technology into more value-oriented sectors and stocks in the market. Some of yesterday’s relative outperformers give a good indication of where the money is going. I think investors should be buying this dip in anticipation of a year-end rally and more bull market gains in 2026. Finviz A bottom in Bitcoin may coincide with the lows for the major market indexes. This bellwether is down 30% from its highs and approaching its April low around 80,000. I think that should serve as support. Finviz This fear is palpable, as CNN’s Fear & Greed Index shows a reading of 6! The headlines are riddled with negative news, and few are suggesting that a bottom is close. That is a perfect setup for a turnback. CNN Note that this index has nearly matched the abysmal level it reached during the height of the tariff tantrum in early April. That low came close to the bottom for the S&P 500, and the beginning of a ferocious rally. CNN I don’t see a repeat of that recovery, but I do see a rebound that is broadly based in which investors start to follow the improvement in breadth for earnings growth. There are countless stocks trading at half the multiple of the S&P 500 index with very attractive growth prospects for 2026. This is a very much needed pullback or correction, depending on the index, that should serve to expel the market of the speculative excesses built up over the past three years.
