US Markets brief: Alphabet gains ground on Nvidia in AI spending war
Plus: Optimistic forecasts, end-of-year rallies, and Google’s Gemini 3.
Markets expect rate cuts in 2026
The US market ended November with a late rise during a shortened trading week as expectations of a December rate cut increased. According to CME FedWatch there is now an 86% probability of a quarter-point cut in rates. Looking further ahead, investors are anticipating between 75 and 100 basis points of further interest rate cuts by the end of 2026.
This expectation seems optimistic given a recent poll by Reuters showing consensus forecasts of higher economic growth and sticky inflation next year. While this outcome may be an accurate assessment of 2026, we need to recognize that optimistic expectations are vulnerable to events that surprise investors, and in doing so, create volatility in asset prices, leading to further investing mistakes.
Diversification still matters for investors
To avoid this scenario, we need to ensure that our portfolios do not fully reflect the extremes of investor sentiment but instead are robust to a range of possible outcomes. This can be achieved through thoughtful diversification that goes beyond simply spreading investments across a wide range of holdings but instead takes account of the underlying drivers of the cash flows of our investments.
The drawback of this approach in a strongly trending market is that the act of diversification naturally reduces the portfolio’s exposure to the single, most popular, outcome and so returns are likely to lag while the trend remains in place. As it is impossible to pick the perfect moment to diversify a portfolio, valuation is typically the best guide for the level of diversification required. As a single scenario becomes more fully reflected in the price of assets, more diversification is needed in a portfolio.
AI spending: Alphabet stock surges
At the sector level communication services once again led the pack, rising nearly 6% in a broader based rally in which all sectors rose at least 1%. However, we continued to see differentiation in the stock price movements within the Magnificent Seven, as Alphabet GOOG again rose more than 10% while Nvidia’s stock price declined.
This followed favorable assessments of Alphabet’s latest large language model Gemini 3 and reports that Meta Platforms META, also up 10% in a week, is planning to use Alphabet’s TPU chips rather than Nvidia’s GPU in some of its data centers.
While Nvidia NVDA is currently experiencing very strong demand for its products, this news was interpreted by some analysts as weakening the competitive advantage of Nvidia as the key recipient of the planned spending on AI infrastructure. It’s a reminder that stock prices for rapidly growing companies typically reflect forecasts of future growth rather than current success.
Will the market rally by the end of 2025?
Heightened expectations of interest rate cuts were also evident in the currency markets as the US dollar fell 0.8%, wiping out the gains of the previous week and supporting the returns of overseas markets. Developed ex-US markets rose 3.6% in US dollar terms while emerging markets gained 2.4%. Korea, 3.1% higher, and Taiwan, up 4.9%, were especially strong reflecting the returning optimism around technology investment.
At an economic level, the optimism that has formed in the data vacuum of the federal government shutdown may be challenged on Friday when the delayed September PCE measure of inflation is due to be released.
Moving toward the end of the year when trading volumes decline, investors should expect some sharp moves in asset prices. When positive, such moves are often referred to as a ‘Santa Rally’ but it is equally possible that sentiment will turn negative. Both can be distracting for investors, who are best served looking well beyond the end of the year.
