Soft-landing tone builds, but markets still balancing on fragile ground

Markets are leaning further into the soft-landing narrative. The S&P has firmed, the dollar is rolling over, and the bid for risk remains intact. Former skeptics are shifting their tone — and yesterday, that tone got political.

Speaking during a campaign stop, Donald Trump said, “Potential fed chair is here too[…] He’s a respected person I can tell you, thank you Kevin,” referring to the Federal Reserve. He didn’t name full names, but markets quickly inferred the message: Kevin Hassett, Trump’s former economic advisor, is in the running.

Hassett has recently turned openly bullish on markets and consumer resilience. That tone, combined with Trump’s comment, added fuel to a rally that was already pushing through resistance. But beneath the optimism, cracks are forming — in bonds, FX, and liquidity. The setup is supportive, but fragile.

Short term: Risk-on flows look likely to continue into mid-December.
Mid term: Policy shifts, liquidity stress, and positioning extremes raise volatility risks for Q1.

Here’s the breakdown.

The consumer: Still spending, still a pillar

Dr. David Deißner of the Atlantik-Brücke talks to the Chair of the Council of Economic Advisers Kevin Hassett

Hassett’s call is simple — the consumer is stretched, but not collapsing. He’s pointed to data showing that holiday sales remain strong, even if they’re increasingly debt-fueled.

95% of Black Friday spending was credit-based

Buy-now-pay-later volumes rose 45% year-over-year

67% of card users don’t plan to pay off their balance this cycle

It’s fragile, but still functioning. That’s been enough to keep the soft-landing thesis alive. As long as job growth continues and rates stabilize, consumers can keep spending — even if it’s on thinner margins.

Markets are reading this as confirmation that Q4 is intact. Tech is holding, small caps are catching up, and defensive sectors are no longer hiding places. The shift is tactical: stay long into year-end, reassess in January.

Short term: Consumer data supports continuation of Q4 rally.
Mid term: Household debt levels leave the 2026 outlook vulnerable to rate or job shocks.

FX: Dollar pressure builds, BOJ risk lurks

USD/JPY: Calm on the Surface, Carry at Risk

USDJPY continues to hover below a major resistance band at 156 to 159. Price has flattened, but the structure remains precarious. With Japanese inflation ticking higher and the BOJ surprising with hawkish tone shifts, traders are beginning to price real risk of a hike in early 2026.

If the BOJ tightens, even marginally, USDJPY is vulnerable to a sharp unwind. Carry exposure is heavy, and options are skewed one way. A break below 155.50 opens the door for a move toward 150 or lower.

This trade hasn’t broken yet — but it’s not stable either.

DXY: Breakdown in Progress

The U.S. dollar index lost the 100 level and is now drifting into the 96s. Momentum suggests further downside is likely. Positioning is starting to flip, and global flows are rotating toward non-dollar assets as expectations shift toward looser policy in Europe and Asia in 2026.

Markets are also weighing a Fed pause into election season — especially with candidates hinting at central bank pressure. Until DXY recovers 98, trend bias remains down.

Short term: Dollar softness supports broader risk appetite.
Mid term: BOJ shift or unexpected Fed hawkishness could trigger sharp FX reversals.

Equities: SPX holds support, breadth widens

The S&P 500 respected its 20-week EMA and bounced sharply. The structure is intact, and the next resistance zone at the psychological number of 7,000 (Give or take).

Importantly, this rally is no longer just tech. The equal-weight S&P (RSP) is gaining traction. Industrials, financials, and even utilities are seeing flows. Fund managers, having underperformed in Q3, are visibly chasing exposure into year-end.

Seasonals support more upside through December 15–20. Beyond that, much will depend on bond yields and any macro surprises.

Short term: Momentum supports another leg higher.
Mid term: Equity gains could stall if bond volatility or funding costs spike.

Treasuries: Positioning stretched, plumbing stressed

The Treasury market continues to flash quiet warnings.

• Short interest in bonds is near multi-year highs.
• The Fed executed the second-largest repo injection on record.
• Dark pool flows are showing early bond accumulation.

The 10-year yield remains trapped in a tight range between 4.2% and 4.5%. Traders are heavily short into this compression, even as funding stress begins to resurface.

The equity rally is brushing this off for now. But this remains one of the most asymmetric risks on the board. Positioning is stretched, and a sharp move in yields could set off a chain reaction.

Case in point – IEF 10 Year Treasury Bond ETF has a short ratio of 3, which means it’ll take 3 full days to cover the short positions, should a short squeeze event occur.

Source: Finviz

If bonds rip, yields drop, dollar drops further, and volatility returns to equities fast.

Short term: Yield compression risk is rising, but not yet triggering.
Mid term: Treasury squeeze or funding stress could become the next macro catalyst.

Final take: Optimism controls the tape, but undercurrents matter

Markets are being driven by tone. Hassett’s shift matters. So does Trump’s hint that he’s already chosen the next Fed chair — widely interpreted as Kevin Hassett. That implication points to a market-friendly, pro-growth Fed in 2026 and adds fuel to the soft-landing narrative.

But the macro plumbing still matters. FX trades are crowded. Treasury markets are stressed. The consumer is running hot — and heavily on credit. This isn’t a bubble, but it’s far from stable.

Short term: Risk assets still have a window to run into mid-December.
Mid term: Volatility risks rise sharply in Q1 if policy surprises, funding cracks widen, or credit tightens.

Stay positioned for strength — just know where the ice is thin.