The Blind Flight of Monetary Policy
The numbers do not add up. On Monday, November 17, 2025, the S&P 500 retreated 0.9% to 6,673, while the Dow Jones Industrial Average shed 550 points in a session defined by professional de-risking. This is not merely a technical pullback. It is the first visceral reaction to a 43-day federal government shutdown that has effectively blinded the Federal Reserve. With the October Consumer Price Index (CPI) report officially canceled and the September payrolls data delayed until later this week, the institutional markets are operating in a statistical vacuum. Per Bloomberg market data, the 10-year Treasury yield has stabilized at 4.13%, yet this stability masks a growing anxiety over the terminal rate in a post-shutdown economy.
Fiscal dominance is no longer a theoretical risk. It is the primary driver of the current term premium. The resolution of the funding lapse on November 12 provided only temporary relief, as the stopgap measure merely kicks the debt ceiling conversation to January 30, 2026. For global macro desks, the focus has shifted from inflation targets to the structural integrity of US credit. When American Express (AXP) reported a jump in its U.S. Consumer Card Member net write-off rate to 2.2% for October, it signaled that the high-interest-rate environment is finally puncturing the consumer fortress. The equity risk premium is compressing under the weight of 4% risk-free returns and deteriorating credit quality at the margins.
The Nvidia Referendum and AI Capex Fatigue
Everything hinges on Wednesday. Nvidia is scheduled to release its Q3 fiscal 2026 results on November 19, an event that has become the de facto clearinghouse for global growth expectations. Analysts expect revenue of $54.9 billion, a 56% year-over-year increase, but the market’s response on Monday—a 2.6% slide—suggests that “beat and raise” may no longer be sufficient. The technical mechanism at play is margin compression within the hyperscaler ecosystem. As Reuters has noted in recent coverage of the tech sector, the capital expenditure required to maintain the AI infrastructure boom is beginning to outpace realized productivity gains in the broader S&P 500. We are moving from the era of hardware accumulation to the era of return-on-investment scrutiny.
Monetary Divergence and the Succession Storm
The Federal Reserve is fractured. Minutes from the October meeting, due for release this Wednesday, are expected to reveal a committee deeply divided over the necessity of a December rate cut. While current Fed Funds futures show the probability of a cut has plummeted below 50%, the shadow of the next Fed Chair appointment looms large. Speculation surrounding Kevin Hassett as a potential successor to Jerome Powell has introduced a “dovish bias” in long-term inflation expectations. If the incoming administration prioritizes lower borrowing costs over price stability, the 10-year Treasury at 4.13% represents a significant mispricing of future inflation risk.
International capital flows are already reflecting this shift. According to the SEC EDGAR institutional filings from the most recent quarter, there is a distinct rotation out of high-beta tech and into sovereign-linked defensive structures. The Yen’s recent volatility and the H-shares struggle in Hong Kong—trading just above 27,000—suggest that the global carry trade is unwinding as the US yield curve steepens. The risk-on euphoria of 2024 has been replaced by a clinical assessment of fiscal sustainability. Gold’s ascent to $4,630 per ounce is the ultimate barometer of this distrust in fiat-denominated assets.
The Liquidity Trap of 2025
Liquidity is becoming asymmetric. While the S&P 500 remains within 5% of its record highs, the underlying breadth is abysmal. Only 50% of stocks are currently trading above their 50-day moving average, a classic signal of a “hollow” market supported by a handful of mega-cap entities. This concentration risk is exacerbated by the absence of reliable economic data. Without the October CPI, the Fed is effectively “flying blind” into its December 17 policy meeting. Investors are no longer pricing in growth; they are pricing in the probability of a policy error.
The next major milestone is the December 18 release of the November CPI data, which will include some non-survey-based inputs from the shutdown period. This report will be the final arbiter for the Fed’s 2025 narrative. Until then, the market remains a function of positioning rather than fundamentals. Watch the 4.25% level on the 10-year Treasury. A sustained break above this threshold will likely force a re-rating of equity multiples that could see the S&P 500 test the 6,500 support level before the new year. The transition to 2026 will be defined by the resolution of the Fed leadership crisis and the first true test of the AI revenue model.
