Markets are in risk-off mode: Some of the 'bloom is off the rose' for AI, strategist says

Market Sentiment & Risk Aversion - Markets are in risk-off mode, influenced by potential Federal Reserve dovishness and crypto market risk aversion signals [1] - Algorithms are trading off Bitcoin as a proxy for risk aversion, with risk sentiment declining [4][9] - A backup in Japanese bond yields and a rise in the yen's price contribute to risk aversion, making carry trades more difficult [5] Interest Rates & Fed Policy - Markets had priced in a potential rate cut, with Fed funds expectations improving significantly [2][7] - The rally in the market was initially driven by improved Fed rate cut expectations, increasing from approximately 30% to over 80% [7][8] - The market is trading off the probability of a rate cut at the next Federal Reserve meeting [10] - Concerns may arise regarding a rekindling of inflation if the Fed pursues a policy of lower rates indefinitely [9] AI & Technology - There's a reassessment of whether AI is bringing bottom-line efficiencies to end-users, not just producers and hyperscalers [12] - The market is becoming more discriminating about AI investments, focusing on the end results [12] - Enthusiasm for the AI trade may be temporarily diminished, but the underlying mentality remains strong due to its dominant force in the market [11][12] Market Catalysts & Outlook - The upcoming Federal Reserve meeting and incoming economic data will be significant catalysts [13] - The market will likely enter a low-volume period, with seasonality and Santa Claus rallies becoming a focus [14] - Window dressing occurred at the end of the month, contributing to market movements [3][4]