Today marks the start of a holiday-shortened trading week (markets close early on December 24 and are closed on December 25), with low volume potentially amplifying moves. Wall Street is coming off a mixed but ultimately positive prior week, where a late rebound in AI-related stocks helped the S&P 500 and Nasdaq post small gains amid ongoing debates over AI valuations and economic signals. Despite the rebound last week both FTSE 100 and S&P 500 are still below their all-time highs. However the FTSE is near to its all-time high, a move above 9930 would change the wave count.
Markets move up in five waves, so far we have not seen a severe correction, we are still in wave (1) or at the end of wave (1). This means the correction is coming, probably in 2026, it will be wave (2). What could cause a correction? There are several interconnected risks that could pressure valuations, trigger corrections, or limit upside into 2026. The biggest risks are stretched valuations in the tech sector and rising bond yields globally. For example what is happening in Japan is cause for concern. The December 19 BOJ hike immediately spiked JGB yields past 2%, narrowed US-Japan yield differentials, and contributed to upward pressure on US 10-year Treasury yields (recently testing 4.1-4.2%). Analysts warn of potential “disorderly” rises in global yields, reduced liquidity, and volatility in equities, bonds, and even alternatives like crypto.
Bitcoin is still in a downtrend, it is not reacting to the rally in the S&P 500. Nvidia and other market leaders like Meta are down too and not following the S&P. This is not what you see in a bull market. This tells me we are at the end of the first leg of the bull market.