By Martin Baccardax
U.S. stocks are getting dragged lower in early Monday trading by a combination of sour retail sentiment and a renewed slump in cryptocurrency prices, both of which could delay the market's typical end-of-year rally.
Bitcoin prices fell more than 6% in overnight trading, and were marked just above the $85,000 mark in early morning on the East Coast. That followed upheaval in the crypto market that left Bitcoin with a 17% slump for November.
The currency's move overnight was paralleled by weakness in U.S. equity futures, suggesting investors' willingness to take risks remains tethered to cryptocurrency prices heading into the final month of the year.
Bitcoin prices have been under extreme pressure over the past two months. They have fallen around 32% from a record high in early October, triggering a wave of deleveraging that has rippled through to other markets.
Investors often place Bitcoin in so-called fixed deposit accounts, and use the value as collateral to speculate in other markets. Bitcoin price declines reduce the value of that collateral and can trigger the sale of those speculative positions. That can bring losses elsewhere in financial markets, which is especially a problem for those who used borrowed money to enhance their returns.
Fundstrat's Tom Lee thinks Bitcoin's inability to move higher despite the increasing likelihood of a December rate cut by the Federal Reserve -- the CME Group's FedWatch tool pegs the odds at around 87% -- suggests the "lingering effects of FD leveraging."
"I think we're still kind of emerging from that but it may take another week or two to fully wash out, and then it will start to fully participate," he told CNBC on Monday, referring to Bitcoin potentially benefiting from expectations for a rate cut.
Another form of leverage in Bitcoin, tied to cheap borrowing costs in Japan, is also starting to unwind as a result of signaling by the Bank of Japan that it could soon raise interest rates, which has triggered a spike in Japanese government bond yields.
Higher government bond yields reflect the likelihood of near- term rate hikes, and lift the value of the yen. Investors who sold yen to finance speculation in other markets are then forced to cover their positions by selling those assets and buying back the currency.
Those dynamics might explain some of the cautious tone seen in the American Association of Individual Investors' most recent survey, which indicated a gloomy outlook for stocks heading into 2026.
Around 43% of those surveyed were bearish on stocks for the next six months, a tally that was around 7 percentage points higher than at the start of November. It was 13 points higher than the poll's historical average.
Reversing both the weakness in Bitcoin and the dour sentiment among retail investors could prove key in establishing a solid December rally for U.S. stocks.
The S&P 500 ended just nine points higher last month, despite powering to its strongest Thanksgiving week gain since 2008. Investors continue to question the breadth of the artificial intelligence trade and look for data to cement the case for a December rate cut from the Fed. The bank's policy-setting committee is scheduled to meet Dec. 9-10.
Still, last week's rally extended the S&P 500's monthly winning streak to eight, the longest since January 2018. The benchmark is now just 0.6% from the record it set on Oct. 29.
December is generally a good month for stocks, but the gains usually come nearer to the end of the year, according to data from Bank of America. Since 1928, the first 10 days of December have produced an average return of 0.05%, while the last 10 days have pulled off an average rally of around 1.17%.
"The market needs to prove it can sustain its late November momentum," said Chris Larkin, managing director for trading and investing at E*Trade from Morgan Stanley.
"But right now, the weakness after Nvidia's earnings looks like it could be more of a short-term AI-selling climax than a sign of heightened bearishness," he said.
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 01, 2025 09:38 ET (14:38 GMT)
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