Wall Street Slips as Rate-Cut Bets Surge; Liquidity Strains Eclipse Nvidia’s Blowout Quarter
U.S. equities fell on Tuesday even after Nvidia topped estimates and Fed officials signaled room for near-term easing, as nagging concerns over an AI-driven melt-up and tightening dollar liquidity kept risk appetite in check. Money markets now price better than a 75% chance of a December rate cut, yet the S&P 500, Nasdaq and Dow all closed lower.
Nvidia beats, but sentiment sours Nvidia’s latest earnings eclipsed analyst forecasts, reinforcing the chipmaker’s outsize role in AI capital expenditure and profit leadership. The print was not enough to shift risk positioning: investors remained wary of stretched valuations across AI-linked names and the durability of earnings momentum into 2025. The broader market struggled despite a dovish tilt from New York Fed President John Williams, who flagged rising labor-market risks and left the door open to policy easing.
Policy repricing intensified into the front end of the curve, with futures-implied odds of a December cut rising above 75%. Even so, equity dip buyers were scarce, highlighting a market increasingly sensitive to liquidity flows and late-cycle narratives.
Liquidity watch: reverse repo near zero Traders are fixated on the Federal Reserve’s overnight reverse repo (ON RRP) facility as balances trend toward zero—an indication that the excess-liquidity buffer from money market funds is largely exhausted. At the same time, demand for Fed repo operations is creeping up, a sign that banks and dealers are leaning more on daily funding.
If the ON RRP cushion disappears entirely, policymakers may need to reassess the pace of quantitative tightening to avoid undue stress on bank reserves and front-end funding markets. A recalibration—whether via QT tempo, Treasury bill issuance mix, or technical tweaks—could influence bill yields, general collateral repo rates, and broader risk sentiment.
Geopolitics in focus: Russia–Ukraine headlines Markets are also tracking reports of an exploratory framework aimed at ending the Russia–Ukraine war. Some U.S. political figures have floated a late-November target date for Kyiv to consider terms, while Senator Marco Rubio has suggested any deadline remains flexible. Media accounts point to a 28-point outline that allegedly includes red lines Kyiv has rejected, such as recognizing occupied territories, curbing military capabilities, and limiting alliances—conditions the Kremlin views as non-negotiable.
Any credible progress would likely support global equities and high-beta FX, compress sovereign risk premia in Europe, and weigh on safe havens such as gold. A de-escalation could also pressure crude oil by reducing war-risk premia embedded in energy markets.
Macro calendar: key prints despite a holiday-shortened week Despite thinner liquidity around Thanksgiving, the data slate remains market-moving. September retail sales and producer price inflation are due Tuesday, the Fed’s Beige Book lands Wednesday, and initial jobless claims follow Thursday. While some indicators are lagging, they will shape market positioning for the December FOMC and guide expectations for early-2025 rate path dynamics.
Traders are also gauging risk-on indicators such as Bitcoin and the Russell 2000, where breadth and momentum could signal whether the latest drawdown is a consolidation or the start of a broader de-risking.
Market Highlights – Nvidia beats consensus, but AI froth concerns cap upside across megacap tech – Fed’s Williams signals room for near-term cuts; December easing odds >75% – ON RRP balances near zero raise questions over QT calibration and bank reserves – Geopolitical headlines around Russia–Ukraine could shift risk premia, gold, and oil – Retail sales, PPI, Beige Book, and jobless claims anchor the week into Thanksgiving
What to watch next – Yield dynamics at the front end: any further pressure on GC repo and bill yields if reserves tighten. – Fed communications: hints of QT pace adjustments or technical tweaks if liquidity stress intensifies. – Energy and metals: sensitivity of Brent/WTI and gold to geopolitical progress or setbacks. – Cross-asset breadth: small-cap and crypto beta as barometers of risk appetite and liquidity impulse.
Questions and answers Q: Why did stocks fall despite rising odds of a Fed rate cut? A: Positioning is stretched in AI and megacap tech, and investors are focused on deteriorating liquidity conditions as the Fed’s reverse repo facility nears depletion. That combination overshadowed dovish policy repricing.
Q: What is the reverse repo facility and why does it matter? A: The ON RRP allows money market funds to park cash at the Fed. Shrinking balances signal less excess liquidity in the system. As that buffer disappears, funding conditions can tighten, potentially pressuring risk assets and forcing the Fed to reassess QT.
Q: How could a Russia–Ukraine agreement affect markets? A: Any credible path to de-escalation would likely lift global equities and high-beta FX, reduce European risk premia, and weigh on safe havens like gold. Oil could soften as war-risk premia recede.
Q: Which data points are most important this week? A: Retail sales and PPI will shape growth and inflation expectations, while the Beige Book provides qualitative insights into regional conditions. Jobless claims offer a timely read on labor-market softening ahead of the December FOMC.
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Last updated on November 25th, 2025 at 02:51 pm
