U.S. investors brace for choppy year-end as rate-cut doubts fuel volatility

U.S. equities look set for a turbulent close to 2025 as uncertainty around Federal Reserve policy and cooling enthusiasm for AI leaders drag on sentiment. Despite Friday’s bounce, major indexes remain well off their late-October highs.

The S&P 500 and Nasdaq Composite are down about 4% and 7% respectively from their record peaks, reversing a months-long AI-driven surge.

“Without a concrete rate-cut signal and with renewed concerns about stretched valuations, this holiday season could be more volatile than investors anticipated,” said Eric Kuby, CIO at North Star Investment Management.

Volatility spikes to multi-month highs

Last week saw some of the sharpest intraday swings since April’s tariff-related market whiplash. The Cboe Volatility Index (VIX) remains above the psychologically important 20 mark, underscoring elevated investor anxiety.
The VIX futures curve has flattened—often a signal that traders expect turbulence to persist for several weeks.

Even with Thursday’s retreat, analysts note the recent selloff resembles a long-delayed cooling. Keith Lerner of Truist Advisory Services points out:

This is the first 5% pullback in 149 days

Historically, such declines occur every 77 days on average

Valuations have eased from extreme levels but remain above long-term norms. The S&P 500’s forward P/E has fallen to 21.8 from 23.5 a month ago but still sits well above its 10-year average of 18.8.

Retail investors show fatigue

Retail traders—who aggressively bought the dip after April’s market shock—are now more cautious.
“We’re not seeing retail investors drive the selloff, but they’re not stepping in aggressively either,” JPMorgan analysts wrote last week.

Fed uncertainty looms large

The biggest near-term driver remains the Fed’s December 9–10 policy meeting. What was once viewed as a near-certain rate-cut event has shifted into a coin toss, following mixed job-market data and conflicting signals from policymakers.