Market Optimism Wins Out as Wall Street’s CME and AI Fears Fade

Wall Street offered a sharp reminder this week about the price of staying on the sidelines and not even an unusual trading outage could derail the market’s momentum. After a jittery start to the month, driven by fears of overheating in the AI space and stretched valuations, nearly every major asset class snapped back in force. Stocks, bonds, Bitcoin, and commodities all climbed together in one of 2025’s most powerful cross-asset rallies. The move unfolded during the usually calm Thanksgiving stretch, yet investor sentiment was anything but quiet.

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Crypto, often a real-time gauge of risk appetite among retail traders, rebounded strongly. Bitcoin jumped more than 7% off its November lows, and shares of heavily shorted companies ripped higher as bearish bets unwound. Volatility cooled across speculative pockets of the market from meme stocks to high-yield debt.

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Precious metals like gold and silver gained traction as traders leaned harder into expectations of a potential Federal Reserve rate cut in December. In equities and commodities alike, positioning swung decisively back toward risk-taking. And critically, Alphabet Inc.’s headline-grabbing rollout of its newest AI model helped reassure investors that Big Tech’s innovation cycle remains robust, easing recent valuation worries and strengthening confidence in U.S. assets.

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Not even a major technical hiccup could interrupt the rally. On Friday, a cooling system failure at a key data center forced the Chicago Mercantile Exchange to halt futures and options trading on benchmark contracts tied to equities, rates, and commodities. The freeze lasted longer than a similar incident in 2019 and briefly knocked a chunk of the market offline. While alternative venues picked up some activity, the episode underscored just how dependent modern markets are on single points of infrastructure.

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Yet the broader price action barely blinked. Passive investors who stayed invested in tech-heavy indices such as the S&P 500 were rewarded once again. Bearish leveraged products tied to the benchmark have been crushed, with losses now exceeding 80% this year.

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Defensive positions haven’t disappeared entirely tail-risk hedges like the Cambria Tail Risk ETF remain slightly positive in 2025 but risk-averse strategies have struggled to keep pace with the speed and breadth of the rebound.

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“The takeaway from this week is clear: don’t fight the Fed and don’t fight AI,” said Emmanuel Cau, strategist at Barclays Plc. “Stocks and all liquidity-driven markets have bounced as expectations of a December Fed cut rise, while fears of an AI bubble have eased.”

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The S&P 500 surged 3.7%  its best weekly gain in six months buoyed by a 7% jump in Alphabet shares. Treasuries advanced as well, pulling the two-year yield down to 3.5% as traders priced in steeper easing over the next year. Bitcoin climbed back above $90,000 after its recent 30% slide. Meanwhile, the Bloomberg Commodity Index rose more than 2% for the week, with spot silver notching a new record.

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Taken as a whole, the week resembled recent market episodes where sharp volatility ultimately served as a buying window for steadfast bulls. Just two weeks ago, the Cboe Volatility Index hit its highest reading since April amid worries over valuations and a weakening labor market. Even so, flows into risk assets never truly stopped.

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The $820 billion Vanguard S&P 500 ETF is on pace for another record year of inflows, pulling in roughly $125 billion so far with the fund up 17% in 2025. Even a basic bet on Treasuries has delivered nearly 7% this year, marking the strongest performance for U.S. government debt since 2020. Junk bonds have regained momentum as well, with the iShares iBoxx $ High Yield Corporate Bond ETF adding almost 1% this week after a brief period of caution toward risky credit.

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All of this has made betting against the market a painful trade. A Goldman Sachs basket of the most-shorted stocks has soared 28% in 2025, while triple-inverse U.S. equity ETFs have collapsed by 84%. Measures of volatility across credit markets  from investment-grade to high yield have also declined.

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“To see sustained, meaningful downside in equities, you’d likely need multiple negative narratives reinforcing each other,” said James Athey, portfolio manager at Marlborough Investment Management Ltd. “Given today’s liquidity backdrop and the global environment, it would probably take a much deeper level of economic concern.”

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The dramatic shift in sentiment has been fueled in part by growing confidence that more dovish voices are gaining influence within the Federal Reserve. A major catalyst: Kevin Hassett, head of the White House National Economic Council, has emerged as the leading candidate to become the next Fed chair. Meanwhile, Fed Governor Stephen Miran reiterated his belief that the U.S. economy requires substantial rate cuts to stabilize. Fresh data pointing to labor-market softness further strengthened the case for a December policy pivot.

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“The possibility of a new Fed chair in May 2026 makes it harder for markets to sell off on strong data,” said Jordan Rochester, head of macro strategy at Mizuho in London. “There could soon be a new sheriff in town and their view of the economic cycle may lean decidedly dovish.”

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