Investors already have something to be thankful for as the stock market’s selloff looks to have stopped for now. But the next few days before Black Friday are critical in deciding whether equities are really back on the shopping list.
A
reprieve came on Friday. New York Federal Reserve President John Williams said he sees room for a “near-term” rate cut, pushing odds the Fed cuts interest rates next month to above 70% from
40% a week ago, according to CME’s FedWatch tool.
That should also allay fears of inflated valuations for artificial intelligence plays—as Barron’s has argued, any bubble is unlikely to burst while the Fed is in
the midst of cutting rates.
Renewed hope for peace between Ukraine and Russia is even more good news for markets. Oil prices were falling Monday after President Donald Trump pushed Kyiv to accept a deal to end
the war by Thanksgiving. This could help ease inflationary pressures over the longer term and strengthen the case for more Fed cuts.
Also crucial for the price-growth narrative in the coming days is the producer price index (PPI) due Tuesday. The key statistics were delayed by the government shutdown and will be the last inflation data before the Fed’s Dec. 9-10 meeting.
While the outlook is improving, investors should remember tough talk is as much a feature of the stock market as the Thanksgiving table.
AI bubble fears may recede but valuations are still stretched and risk sentiment remains fragile. The
recent plummet in Bitcoin prices may be a warning of how much hot air is out there.
There are also signs of trouble under the hood. While the S&P 500 is coming back from its 5% drop below its peak, as Morgan Stanley points out, two thirds of the largest 1,000 U.S. stocks are down more than 10%.
It’s all food for thought beyond turkey.
—Jack Denton
***Join Barron’s senior managing editors Lauren Rublin and Ben Levisohn today at noon for an in-depth technical look at stocks, bonds, commodities, volatility, and economic trends with Andrew Addision, proprietor of The Institutional View research service. Sign up here.
What’s Ahead for Markets in 2026? From “Liberation Day” tariffs to torrid rallies in AI stocks and gold, this year has been
full of surprises. Join us on Dec. 11 at noon for discussions with investment strategists and money managers about the outlook for the economy and markets in 2026—and how to position your portfolio for success. Sign up here.
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Interest Rates Should Be Higher Based on the Taylor Rule
Federal Reserve officials are publicly at odds ahead of their December
meeting about whether to cut interest rates again. But behind the latest controversy is a long-simmering and arguably more important debate about how to set monetary policy: on the basis of fixed rules, or central bank officials’ judgment.
- A rules-based approach would put the fed-funds rate significantly higher than its current level, some say, while the current approach may leave the markets guessing until the Fed’s statement is released on Dec. 10. It has already cut rates twice this year, by a quarter-point each time.
- Both cuts were cast as “insurance” against further deterioration of the labor market and the economy, while inflation is still above target. Rules-based policy, versus the Fed’s current data-dependent approach, would put rates a third of a percentage point higher in view of the inflation backdrop.
- The fear is that lower rates heighten the risk of another surge in price growth like the post-Covid surge just a few years ago. Mathematical models such as the Taylor Rule, developed in the 1990s by Stanford economist John Taylor, have been used for years as guidelines for setting rates.
- Taylor’s rule links rates to inflation and growth and stipulates that rates should be raised when inflation exceeds an established target or the economy runs hotter than expected. Fed policy decisions in recent months have diverged notably from what the Taylor Rule would prescribe.
What’s Next:Allianz Trade estimates that
the fed-funds rate now sits roughly half a percentage point to three-quarters of a point below the level implied by a standard Taylor-rule calculation. That is the widest gap since 2022, when the Fed underestimated inflation and prices rose to a 41-year high of 9.1%.
—Nicole Goodkind
White House Battles Perception It Isn’t Focused on Economy
The White House wants to overcome criticism that it isn’t focused enough on the so-called affordability crisis, instead focusing much of the first few months of President Donald Trump’s second term on foreign policy, including import tariffs and Russia’s war in Ukraine. A CBS News poll suggests Americans are frustrated.
- While Americans list the economy as the most important priority for Trump, 77% say he isn’t spending enough time on it, the CBS News/YouGov poll found. His approval ratings on handling the economy have fallen since September, to 36% approving now, versus 41% two months ago and 51% in March.
- Officials making the Sunday talk show rounds tried to reframe things. Treasury Secretary Scott Bessent said people haven’t yet factored the administration’s tax cuts into their planning for next year, when many will be getting substantial tax refunds and extra money in their pocket after adjusting their withholding.
- Bessent told NBC News that costs are coming down, listing lower interest rates and a big October for home sales, lower energy and gasoline prices, and even lower costs for turkey for Thanksgiving dinner. He said healthcare costs were going to come down and there was an announcement on that coming.
- White House economic advisor Kevin Hassett told Fox Sunday Morning Futures that people shouldn’t underestimate Trump on his proposal to issue $2,000 tariff dividend checks, despite analysts who say the stimulus is unlikely to happen. If the money keeps coming in, Hassett is sure Trump will look into it.
What’s Next: Trump surprised many with a friendly Oval Office visit by New York’s mayor-elect Zohran Mamdani, who campaigned on the affordability issue. Over the weekend, Trump said on social media that his own work on the economy hasn’t yet been fully appreciated: “Things are really Rockin’.”
—Liz Moyer
Thanksgiving Air Travel Will Be Busiest in 15 Years
Pack plenty of patience if you’re traveling for Thanksgiving. The Federal Aviation Administration said that it expects air travel between Tuesday and Sund
