S&P 500 Rally Cools as Momentum Fades in Major Tech Stocks

Wall Street’s cautious early rebound fizzled out on Tuesday as several major tech names lost momentum, overshadowing what had been a strong recovery in cryptocurrencies after a shaky start to December. Meanwhile, both Treasury yields and the US dollar steadied after recent volatility.

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The S&P 500 ended the session almost flat, weighed down by declines in roughly 300 of its constituents. Investor sentiment turned more guarded following reports that OpenAI CEO Sam Altman has declared a “code red,” shifting internal priorities to accelerate upgrades to ChatGPT. That urgent reallocation of resources means other projects will be pushed back. In megacap land, Tesla Inc. took the biggest hit after investor Michael Burry slammed the stock as “ridiculously overvalued.”

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Bitcoin, which tumbled as much as 8% on Monday, clawed its way back above the $90,000 threshold. The world’s largest cryptocurrency is still down nearly 30% from its early-October record high, and selling pressure intensified after roughly $19 billion in leveraged positions were wiped out. The broader equity benchmark hovered near 6,820, with Tesla slipping 1.8%. Boeing Co., however, bucked the trend, rallying after the company said it expects to resume generating positive cash flow in 2026.

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On the fixed-income side, short-dated Treasuries once again led the move, with two-year yields edging two basis points lower to 3.51%. The dollar swung between small gains and losses throughout the day.

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For investors tempted to short US equities in December, strategists warn that such a contrarian bet ignores two powerful forces still working in the market’s favor: resilient economic growth and persistent enthusiasm around artificial intelligence. Analysts at 22V Research argue that solid consumer spending and rising AI investment continue to bolster productivity supporting earnings growth and providing a backbone for further equity gains.

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“Being short here requires strong conviction that the economic backdrop is about to weaken significantly or that expectations for AI-related capital spending will shift sharply lower,” wrote strategist Dennis Debusschere and his team.

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At the same time, Barclays Plc strategists observed that the S&P 500’s implied volatility ahead of Federal Reserve meetings has fallen steadily since early 2023. Realized market reactions to policy decisions have also hovered near zero, suggesting that monetary policy is exerting less sway over market behavior than it has in recent years.

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That diminishing influence comes at a time when Fed officials themselves appear increasingly divided. After more than a full percentage point of rate cuts, policymakers now face the challenge of determining where easing should pause and their outlooks have drifted further apart than at any time since 2012, when the Fed began publishing individual rate projections. That divergence has spilled into a rare public disagreement over whether another rate cut should be delivered next week, and what the path looks like beyond that.

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“Nothing changes our view that the Fed will cut next week, but it’s shaping up to look more like a hawkish cut,” said Andrew Brenner of NatAlliance Securities. “We could see at least three dissents next week.”

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With economic data still pointing to sturdy growth and market participants increasingly focused on the productivity boom tied to AI, the debate over how much further the Fed should ease is gaining new urgency. While some officials argue that inflation progress justifies continued cuts, others worry that policy may already be approaching a point where further reductions could reignite price pressures or fuel excessive risk-taking.

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The widening gap among Fed projections highlights the uncertainty policymakers face as they navigate an economy that has repeatedly outperformed expectations. For investors, it introduces fresh complexity into year-end positioning, especially as markets weigh the interplay between a healthy consumer, corporate investment in next-generation technologies, and the diminishing sway of central bank guidance.

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Even with tech megacaps wobbling and crypto markets still digesting heavy liquidations, underlying momentum in productivity-driven sectors and a resilient economic backdrop remain key themes shaping sentiment heading into the final stretch of the year.

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