Both the S&P 500 ETF (SPY) and the Nasdaq 100 ETF (QQQ) fell by over 1% on Tuesday as investors continue to sell out of technology and AI stocks. AI bubble fears intensified following reports that asset management firm Blue Owl Capital would not back Oracle’s (ORCL) planned $10 billion data center facility due to stalled negotiations.
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Another contender has climbed the ranks in the race to replace Fed Chair Jerome Powell once his term ends in May 2026. The odds that President Trump nominates Fed Governor Christopher Waller as his pick surged after the Wall Street Journal reported that the two men would meet for an interview. Trump previously said supporting rate cuts would be a prerequisite for his nominee, which Waller backed in an appearance on CNBC’s “Squawk Box.”
“Standard central bank wisdom is you look through one-off price effects, like a tariff would be if it has inflation effects,” Waller said. “Then, the labor market’s telling me we should continue cutting rates.” Waller added that he expects recent job growth figures to be revised down to show virtually no growth.
However, Federal Reserve Bank of Atlanta President Raphael Bostic has a different stance, saying that the risk of inflation poses a greater threat to the economy than a soft labor market. Bostic, who recently announced that he would retire once his term ends on February 28, 2026, expects annual inflation of at least 2.5% through 2026. He warned that additional rate cuts would fuel persistent inflation that is still above the Fed’s target of 2%. The contrasting opinions between the two Fed officials underscore a deep division within the Fed over the interest rate path.
“After wrestling with all the considerations, today I continue to view price stability as the clearer and more pressing risk despite shifts in the labor market,” wrote Bostic.
Meanwhile, Bank of America’s (BAC) Global Fund Manager Survey (FMS) for December showed cash allocation at a record low of 3.3% since the survey’s inception in 1999. The firm notes that a cash allocation below 3.5% has historically led to a 2% drop in the MSCI All Country World Index over the next 30 days.
Looking ahead, the market will receive a major inflation update tomorrow morning at 8:30 a.m. Eastern Time when the Bureau of Labor Statistics (BLS) publishes November’s Consumer Price Index (CPI). Economists are forecasting a monthly rise of 0.3% and a yearly rise of 3%.
The S&P 500 (SPX) closed with a 1.16% loss, while the Nasdaq 100 (NDX) fell by 1.93%.
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