Tonight, the Federal Reserve's "no action" is unsurprising, and the market chooses to "buy everything" (except crude oil).

The Federal Reserve's decision to pause rate hikes at this meeting is almost certain, but across-the-board outperformance in macro data is redefining the policy path for December. Against the backdrop of heightened expectations for "higher for longer," the market saw a rare simultaneous rally in both risk and safe haven assets—only crude oil bucked the trend, reflecting underlying concerns on the demand side.

The probability that Fed Chair Powell and his colleagues will stand pat today has exceeded 90%, but rate futures show the likelihood of a December rate hike has quietly risen back above 80%. Meanwhile, durable goods orders, existing home sales, home prices, and the consumer confidence index all beat expectations, pushing the US macro surprise index to its highest level since July, providing fresh support for the "higher for longer" narrative.

Against this backdrop, stocks, credit bonds, the dollar, gold, and bitcoin all climbed in tandem, while the yield on the 10-year US Treasury held steady just below the 5% mark, with bond market volatility falling to a one-month low. Oil was the sole exception—de-risking expectations brought by diplomatic negotiations pulled prices lower, as WTI tested the $100 level. This gave some respite to the bond market at the margin, but also brought concerns over the global demand outlook to the surface.

Macro Data Beat Across the Board, December Rate Hike Expectations Reignite

A string of macro data released Tuesday beat market expectations collectively, providing grounds for the Fed to maintain a hawkish stance. Durable goods orders, existing home sales, home prices, and the consumer confidence index all surpassed forecasts, pushing the US macro surprise index to its peak since July.

The rates futures market responded swiftly. Although the probability of a pause at this meeting remains above 90%, the implied probability of a December hike has rebounded from recent lows to over 80%. This repricing signals that the market is starting to interpret "pause" as "skip" instead of "end"—whether this repricing of the policy path is sustainable will largely depend on this week's earnings results from mega-cap tech companies.

The 10-year Treasury yield remains stuck just below 5%, with demand stronger at the long end. Robust macro data and falling oil prices offset each other, keeping yields steady overall. Bond volatility has dropped to a one-month low, while the equity risk premium, though down slightly, remains notably divergent from bond risk.

US Treasury Yields Plateau at Highs, Rare Concurrent Rally in Risk and Safe Haven Assets

With US Treasury yields fluctuating at elevated levels and the market forming a relatively stable view of the policy path, the day saw a rare phenomenon: both risk assets and traditional safe havens rallied together.

In equities, the Nasdaq 100 recovered its 100-day moving average, and the S&P 500 broke through its 50-day average. Credit markets also strengthened, with both investment grade and high yield spreads narrowing, while data center bond spreads compressed as well.

At the same time, the dollar strengthened against the euro due to both weakness in the euro and technical factors, rising to the upper bound of its month-long range; gold saw a strong rebound near the $4000 technical support level; and bitcoin rallied after holding the $80,000 level.

This "buy everything" pattern essentially reflects that: with yields plateauing at high levels and short-term policy path expectations becoming clearer, capital is choosing broad positioning rather than one-sided bets in the window between the Federal Reserve decision and the technology giants' earnings.

AI Financing Narrative Rekindled, Tech Stocks Lead Gains But Volume Light

Another key catalyst for the day's equity rally came from a staged recovery in the AI investment narrative.

Broadcom completed a $63 billion funding deal, with Bank of America, Citigroup, Morgan Stanley, and Blackstone all participating, to provide capital support for Anthropic to lease Broadcom's AI chips and network equipment. This was the largest AI chip financing transaction to date, although reports indicate Broadcom absorbed some losses to make the deal happen. Meanwhile, Meta completed a $25 billion equity offering with a subscription ratio of about five times, indicating strong institutional demand for mega-cap tech stocks.

According to Goldman Sachs' technology trading desk, drivers of the AI sector’s strength included: temporary relief from AI financing concerns, expectations for Google, Microsoft, and Amazon's upcoming earnings and capital expenditure guidance, and technical rebounds from oversold conditions in certain stocks. The broad AI sector has gained about 5% since last Friday’s close, while non-AI sectors fell approximately 30 basis points over the same period.

However, Goldman traders also noted overall trading activity for the day was just 3 out of 10, skewed toward selling with a net bias of about 1%. Long-term institutions were net sellers in information communication services and macro products, while hedge funds were net buyers in communications, technology, and finance. This was by no means a euphoric dip-buying rally, but rather cautious positioning ahead of the Federal Reserve decision and major tech earnings.

Oil Price Drops Against Trend, Demand Worries and Geopolitical Premium Persist

Within the “buy everything” rally, crude oil was the sole exception. WTI prices dropped again, testing the $100 level.

The immediate trigger for the price drop was positive signals on the diplomatic front—officials from Saudi Arabia, Turkey, and Pakistan held talks with the Iranian side in Tehran, easing market fears over a US-Iran conflict escalation and supply disruption in the Strait of Hormuz. Meanwhile, reports indicate Iran's supreme leader discussed the possibility of ending the current conflict in a meeting with the Supreme National Security Council.

However, structural tightness on the supply side has not eased. The physical premium between December and January Brent contracts is near $5 per barrel, having widened significantly from a week ago; crude and refined product inventories are about 76 million barrels below seasonal averages. At the same time, continued Houthi attacks on Saudi targets make it difficult for the risk premium to fully disappear.

The scarcity premium in the shipping market also deserves attention. Middle East crude exports have returned to near pre-war levels, but tanker rates remain elevated. Reports suggest Iran has threatened to act against Sinokor-owned vessels, which last month carried around 40% of crude through the Strait of Hormuz. This means that high shipping and insurance costs will continue to keep oil prices above pre-war levels.

In refined products, diesel prices have dropped to a one-week low, with weakness on both sides of the Atlantic. The near-term pullback in oil prices offers some support to the bond market, but the underlying demand worries stand in subtle tension with the day’s strong macro data.

Watch for Credit Stress to Spread: The Three Stages of “Rotation—Contagion—Liquidation” Risk

Beyond the day’s broad rally, Bloomberg macro strategist Frank Monkam warns that the market may be on the eve of the next downturn, with risks evolving through three stages: “rotation, contagion, liquidation.”

In the first stage, capital migrates from tech and AI-related exposures toward defensives and low-beta sectors. Initial rotation can buoy major indices, creating a false sense of resilience, but in reality the market’s leadership is already quietly deteriorating.

In the second stage, as financing conditions continue to tighten, credit stress spreads from the AI segment to the broader market, weighing on overall earnings forecasts. Rising credit volatility and worsening funding conditions will prompt a broad repricing of equity risk premiums, with credit markets gradually dictating risk appetite.

In the third stage, when defensive rotation can no longer absorb selling pressure, systemic deleveraging and risk-off positioning will exacerbate declines at the index level. Monkam notes that correlations between sectors have been converging rapidly since September—a crucial dynamic. The real inflection point does not lie in today’s rotation itself, but in the moment when credit stress finally hits the breadth of the market. At that point, orderly sector rotation could morph into a complete liquidity unwind.