The S&P 500 is gradually losing its key advantages, and those unprepared for corrections are starting to panic. Even the White House's efforts to stabilize the situation are not particularly helping. Yes, thanks to the announcement of a reduction in tariffs on food and agricultural products, the broad stock index managed to close a huge gap down after the opening bell. However, the clouds over bulls continue to thicken.

Expectations of monetary stimulus and artificial intelligence technology are the pillars that have allowed the S&P 500 to soar 43% from the April bottom to the October record high. Nevertheless, nothing lasts forever under the moon. After two rate cuts in September and October, the Fed is ready to take a pause in December, which was clearly not in the plans of American stock enthusiasts. The decline in the probability of easing monetary policy at the end of the year caused the broad index to retreat.

Dynamics of S&P 500 and market expectations regarding Fed rate

Expectations of rate cuts were the main reason investors accepted elevated fundamental valuations. First and foremost, the price-to-earnings ratio based on expected earnings for the next 12 months. Many companies in the Magnificent Seven had a P/E ratio exceeding 30. As a result, the drop in the chances of continuing the monetary expansion cycle led to a 4.7% drop in the Bank of America's rapidly growing companies index. This represents the worst dynamics since April.

The decline in risk appetite turned out to be most devastating for the Citi euphoria index. This index is based on the preferences of amateur traders who have found themselves in trouble. The Goldman-tracked basket of stocks favored by individual traders fell 10% in November, marking its worst performance since 2022.

Dynamics of stocks favored by amateur traders

The crowd can outperform professionals when the S&P 500 is steadily rising. However, as soon as problems arise, amateurs flee the battlefield. Their favorites in 2025 were the shares of tech giants. The sell-off of the Magnificent Seven stocks turned hopes into lost illusions.

Greed can certainly return. The decline in the probability of a rate cut on federal funds in December is based on the hawkish rhetoric of FOMC members. However, the end of the shutdown and the publication of official data may confirm the weakness in the US economy revealed by alternative sources. The chances of monetary expansion will increase, and along with it, so will the S&P 500. Especially since the world's largest company, NVIDIA, will report mid-week. This tech giant has the ability to seriously shake up the market and temporarily make investors forget about fear.