S&P 500 Gaps Down, but the Uptrend Holds

December began with the S&P 500 opening sharply lower on Monday, December 1, 2025. The index opened at 6,812.30, creating a meaningful gap down from Friday’s close of 6,849.09. The selling continued immediately after the bell, with the market dropping another 12 points to an intraday low of 6,799.94. That level ultimately marked the bottom of the morning, triggering a rebound that retraced more than half the gap and helped stabilize the broader market.

The first hours of trading were marked by three intraday swings - each over 25 points - reflecting some short-term volatility. Mega-cap technology stocks opened broadly lower, weighing on the index and contributing to the initial selloff. However, once the market established its morning low, dip-buyers became more active, allowing prices to recover in a constructive manner.

Despite today’s early weakness, the short-term uptrend remains intact. Our trend models still classify the S&P 500’s trend as four days old and of medium strength on the daily chart. This resilience is noteworthy, especially considering the size of today’s opening gap and the pressure from tech at the open. Markets that can absorb a gap down, make a low, and retrace a large portion of the decline tend to signal underlying demand and buyer conviction.

Wall Street Raises Its Outlook: Major Banks Lift S&P 500 Targets

Fueling investor confidence are a series of upward revisions from leading global investment banks, many of which were released last week during a period of improving technical conditions.

J.P. Morgan raised its base-case 2026 S&P 500 target to 7,500, with a bull-case projection above 8,000. Their outlook is driven by expected Federal Reserve rate cuts, stronger corporate earnings, productivity gains tied to AI adoption, and Sustained market leadership from mega-cap technology.

Deutsche Bank lifted its target to 8,000, emphasizing the ongoing strength of U.S. GDP, solid earnings momentum, and a multi-year AI investment cycle that is expected to expand corporate margins across various sectors.

Morgan Stanley followed by raising its forecast to 7,800, highlighting U.S. dominance in AI adoption, stronger fundamentals compared with Europe and Asia, and healthier corporate balance sheets.

These upgrades arrived during a technically positive week for equities, compounding bullish sentiment and reinforcing the narrative that long-term structural forces - especially AI and productivity - continue to support higher equity valuations.

Macro Highlights: Fed Expectations Shift Yet Again

One of the most important developments last week was the rapid shift in expectations surrounding Federal Reserve policy. Market sentiment has flipped decisively toward easing, with strategists now viewing a December 2025 rate cut as highly likely - a sharp contrast from expectations just a few weeks ago.

According to CME Fed Funds futures, markets are pricing in an 87% probability of a 25-basis-point rate cut at the December meeting. In other words, investors now see more than 80% odds that the Federal Reserve will lower interest rates before the end of the year.

This re-pricing reflects several macro factors:

• Softer inflation data that suggests price pressures continue to ease
• Stable unemployment figures, indicating no signs of labor market stress
• A desire among policymakers to support economic momentum heading into 2026

This shift has quickly become the defining macro narrative. As strategists have noted, “What a difference a week makes.” Markets that appeared uneasy and directionless two weeks ago now see a dovish pivot from the Fed as the base case.

The change in rate expectations is helping cushion intraday volatility and providing a broader tailwind for equity markets - especially for growth and AI-linked sectors that benefit from lower discount rates.

Market Outlook: Some Volatility, but Trend Still Up

Today’s gap down underscores that even strong markets experience abrupt pullbacks. But the intraday rebound, the partial gap fill, and the maintained short-term uptrend all point to continued underlying strength.

Combined with rising Wall Street targets and a dovish shift in Fed expectations, the market enters December with momentum - and with buyers still willing to step in during moments of weakness.

December rarely lacks surprises, but for now, the S&P 500 continues to signal an upward bias despite the volatility.