Pre-market US stocks watch: congested signals amid high-level fluctuations

Last night, the US stock market showed mixed gains and losses on the surface, but the underlying structure was not easy. The slight rise in the Nasdaq largely depended on Tesla reaching a new high and a few tech giants supporting the index, which was forcibly pulled back from its intraday lows; meanwhile, the Dow and S&P 500 have fallen for three consecutive trading days. Against the backdrop of continued deterioration in market breadth, this kind of “decent index, weak feeling” market inherently signals fragility.

Under High Levels, Style Is Quietly Shifting

While the indices remain high, internal market rotation has already begun. In recent weeks, under the narrative of a “soft landing,” small-cap stocks and cyclical sectors were rapidly boosted, but last night, the Russell 2000 closed lower again, with small stocks clearly entering a consolidation and pullback phase in recent days. At the same time, energy and healthcare started to lead the decline, which is not healthy diffusion but more like profit-taking at high levels beginning to differentiate.

Institutional Positions Are Already Extremely Extreme

What is truly worth cautioning is the position structure. The latest Bank of America fund manager survey shows that institutional cash holdings have fallen to 3.3%, hitting a new low since 1999. The survey involved over 200 investors managing a total of more than $500 billion in assets.

According to Bank of America’s “cash rule,” when cash holdings fall below 4%, the risk of market sell-offs significantly increases. The logic is simple: when almost everyone is fully invested, where will the incremental buying come from? This is a typical extremely crowded trade state, meaning the market’s tolerance for any negative news is very low.

Employment Data: Don’t Just Look at the Headline

Last night, the November non-farm payrolls increased by 64,000, which seems “better than expected,” but the real value lies in the details. The unemployment rate rose to 4.6%, hitting a new high in over four years, indicating that the cooling of the labor market is not just a short-term fluctuation.

Further breakdown shows that the unemployment rate increase mainly comes from more people re-entering the labor force and an increase in temporary layoffs, while permanent layoffs have slightly decreased. This means employment is cooling but has not yet entered a substantive recession phase—it’s a “cooling” rather than a “collapse.”

Consumption Is Not Collapsing, But It’s Not Hot Either

Signals from the retail sector are also neutral. The delayed release of October retail sales was flat overall, with weak performance in big-ticket items (especially cars), while other categories remain okay. Consumption has not stalled but has clearly slowed at the margin, in a state that neither supports recession trades nor is strong enough to accelerate again.

For the Federal Reserve, This Is a “Stuck” Data Set

The combination of employment and retail data is neither bad enough to trigger recession fears nor weak enough to force the Fed to cut rates immediately. The market currently assigns about a 20% probability of a rate cut in January, with a more consistent expectation being: stay on hold for the next few months, waiting for cleaner, more definitive data.

Interest Rates, the Dollar, and Volatility: Temporarily Locked

The 10-year US Treasury yield slightly retreated to around 4.15% last night; the dollar index softened briefly after the mixed employment data, currently oscillating around 98.4; the VIX is at about 16.5, indicating moderate volatility.

The recent logic for the dollar is also clear: weaker employment → lower rate hike expectations → dollar under pressure; but oil prices, geopolitical risks, and structural issues in the ECB, BoE, and BoJ make the dollar “hard to fall even if it wants to.”

Variables to Watch Tonight

At 21:15 Beijing time, Fed Governor Waller will speak; at 22:05, New York Fed President Williams will also speak. The focus is not on new policies but whether they will qualitatively comment on the latest employment data and whether they will hint at a change in the future rate cut path.

Crude Oil: More Like a Deflation Warning Than Pure Good News

WTI crude oil briefly fell to $55 yesterday, hitting a new low since 2021, leading the energy sector lower. The sharp drop in oil prices is indeed beneficial for inflation data in the short term, but at the current cycle position, it more signals a global demand deficiency rather than purely “good news.”

For airlines, logistics, and some discretionary consumption, low oil prices are a medium-term positive, which has already been reflected in the market. However, US sanctions on Venezuela are pushing WTI higher again, and this variable needs ongoing monitoring.

The Consensus Among Major Central Banks

The attitudes of major central banks are now showing clear divergence but with a unified direction:

• Federal Reserve remains in high interest rate territory, slowly cutting rates;
• Eurozone opts for high rates + prolonged wait-and-see;
• UK has taken the lead into a “conditional rate cut” pathway;
• Japan is moving from ultra-loose policy toward normalization, combined with fiscal easing.

Conclusion

Overall, this is a market environment characterized by indices still stable, internal fragility, full positions, and expectations locked in. It does not mean an imminent crisis, but it does imply that any surprises will be amplified.

So the question is simple: How much cash do you still have in this position?

This question may be more important than simply judging whether the market will go up or down.