December Opens Lower as Crypto Rout Sparks Risk-Off Mood

U.S. equities slipped to start December as investors took a breather following a strong November run. Risk appetite faded amid a sharp selloff in cryptocurrencies and a rise in global bond yields, pressuring small caps and tech shares. Despite some softness, the pullback appeared orderly, and seasonal trends could still support equities later this month. Treasuries weakened as Japanese bond yields surged, and Friday’s upcoming inflation data looms as the next key test.

Key Headlines & Market Movers:

• Crypto Selloff Hits Risk Appetite: Bitcoin dropped over 6%, with nearly $1B in leveraged positions liquidated, dragging down crypto-linked equities. Ether and Solana saw even sharper declines. The move spilled into broader markets, dampening enthusiasm for riskier assets and hitting small-cap stocks hardest. Strategy Inc. (MSTR), Coinbase (COIN), and Riot Platforms (RIOT) each slid 3-7% as investors sought safer ground.

Global Bond Market Volatility Returns: Japanese bond yields surged after comments from the Bank of Japan’s governor spurred speculation of a policy shift. This rattled global fixed income markets, with U.S. 10-year Treasury yields rising 8 basis points to 4.09%. The move pressured equities, particularly interest-rate-sensitive sectors, and reinforces the delicate balance central banks face in unwinding stimulus without undermining growth.

• Mixed Megacap Performance - Nvidia Stands Out: The "Magnificent Seven" tech names saw mixed results, with Nvidia (NVDA) up 1.5% after announcing a $2B investment in chip design firm Synopsys (SNPS), which rallied 5%. The partnership aims to extend Nvidia's AI reach. Alphabet (GOOGL) edged lower, and broader tech sentiment remains cautious amid valuation concerns and rising capex needs tied to AI infrastructure.
• Manufacturing Weakness Adds to Fed Debate: U.S. factory activity contracted more than expected in November, reinforcing the narrative of slowing growth. However, the focus remains on inflation, with the Fed’s preferred gauge due Friday. While expectations are growing for a December rate cut, the absence of key jobs data before the next FOMC meeting may temper aggressive positioning.

S&P 500 Sector Performance

Looking Ahead

Despite a cautious start, historical trends still favor a December rally, especially in years with strong YTD gains. Market participants will closely watch Friday’s PCE inflation print for confirmation of easing price pressures. Until then, sentiment may remain fragile, particularly with rising geopolitical and macro risks abroad. Year-end positioning, consumer spending resilience, and earnings growth expectations will be key supports heading into mid-month.

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