20251209 US Stock Market Pre-Market Observations

1. All three major indexes closed lower last night, but the declines were manageable. This is normal anxiety ahead of an FOMC meeting. The market appears hesitant near historical highs, anxious about macro risks materializing this week.

2. Nasdaq trading volume surged to 8.3 billion shares, above average, yet the index only dipped slightly. This kind of high-volume stagnation usually means shares are being intensively exchanged at highs. More notably, the proportion of zero-day-to-expiry options exceeded 60% again, indicating massive intraday speculation, with intraday volatility possibly completely decoupled from fundamentals.

3. The small-cap RUT is up 13% this year, but 40% of its constituents are still losing money. This is not a fundamentally driven bull market, but clearly driven by liquidity. In the short term, if the Fed actually starts cutting rates, small caps may get another boost, but in the medium term, if 2026 growth expectations are revised down, loss-making small caps will be the first to suffer.

4. On the fear index side, VIX jumped 8.1% in a single day to 16.66. Although it hasn't breached the 20 warning line, this volatility suggests institutional funds are buying insurance. Unlike last week’s reckless buying, they are now pre-paying for possible volatility.

5. Last night, the 10-year US Treasury yield hit 4.17%, a new high since late September. Global long-end yields also rose, putting pressure on high-valuation growth stocks. If it breaks 4.2%, many AI concept stocks' DCF models will need to be recalibrated, and valuation cuts could be more severe than earnings cuts.

6. From a macro perspective, the December FOMC is a rate path trade, not a yes/no rate cut trade. A 25bp move is basically a done deal; the real variable is the 2026 dot plot and Powell’s forward guidance—how to pave the way for his successor so they’re not forced to be hawkish right away, nor let asset bubbles get out of control.

7. The rise in long-end yields suggests people are worried that one cut could be the end, or that the pace afterwards won’t be as dovish as expected. With 10Y >4.1% and VIX rising, the market is unwilling to push to new highs before the meeting, and is more likely to reduce some positions and buy some protection.

8. There are two key data points affecting trading rhythm tonight: one is the JOLTS job openings at 11:00 pm; if openings continue to decline, combined with previous layoff data, it will reinforce the narrative that employment is soft-landing or even weakening. The other is the 10-year Treasury auction at 2:00 am tomorrow; if demand is weak and yields are forced higher, growth stocks and long-duration assets will face renewed pressure.

9. The decision and dot plot will be released early Thursday Beijing time, but headlines, official leaks, and various Fed watch reports starting today will sway stocks and bonds. The 25bp move is basically a done deal this time—not worth betting on the result itself.

10. On individual stocks, Trump allowing H200 exports but taking a 25% cut caused NVDA to rise 2-3% after hours. The market sees this as positive, at least sales can resume.

11. Marvell dropped nearly 7% on reports that Microsoft is considering turning to other suppliers for some AI chip projects. This is a reminder that, except for absolute monopolists like Nvidia, moats in the downstream supply chain are shallower than imagined; any small shift in capex by giants is a major blow to suppliers.

12. Carvana jumped over 10% after being added to the S&P 500, as passive funds were forced to buy in. Not recommended to interpret this from a fundamental perspective.