US stock futures are slightly higher following a positive session on Tuesday, as risk appetite has returned to the markets. Expectations of a Federal Reserve interest rate cut next week continue to be a primary driver, with markets pricing in a high probability (around 89%) of a 25 basis point reduction. Investors are keenly awaiting the ADP employment report for November, due later today, for fresh insights into the labour market ahead of the FOMC meeting next week. But the traditional “Santa Claus rally” this December may not materialise due to uncertainty driven by AI stock valuations. Valuations are high due to a strong stock market performance year to date.
December is a bullish month for stocks but when the stock market performs better than expected in the first eleven months of the year, investors will take profits in December. So far the rally in the FTSE has retraced 63% of the previous decline, this is an average size second wave. A second wave can be larger and I think it will, assuming the US markets move higher.