Markets step into Thanksgiving week with a familiar setup: thinning liquidity, elevated seasonality expectations, and a Federal Reserve that is still not fully aligned with what the market is pricing. With positioning elevated across tech, growth, and duration-sensitive names, the risk is less about a fundamental shift and more about how thin the order book becomes as liquidity evaporates.
Thanksgiving week consistently delivers some of the lowest liquidity of the year. For traders, this cuts both ways: ranges shrink until they don’t, and then a small flow can move markets outsized distances. Dealer gamma is neutral enough that markets can drift without resistance, but thin books mean any shock — Fed speak, yields, or oil — travels further than normal.
Seasonality studies point bullish into late November, but this year the setup is crowded. Hedge funds have rebuilt long exposure, CTAs are net buyers into declines, and retail flows into tech ETFs remain strong. Seasonal tailwinds matter — but only when positioning leaves room. Right now, that room is tight.
Fed officials will speak throughout this holiday-shortened week, and markets will parse every hint on 2026 cuts. The issue: the market is still pricing more easing than the Fed has signaled. Any hawkish pushback could tighten financial conditions quickly in an illiquid tape.
The 10-year remains the quiet driver beneath all asset classes. A move back above ~4.25% risks tightening risk sentiment. A drift toward 3.9% would amplify seasonal flows and support equities. In thin liquidity, a 5–7bp swing can have outsize effects.
Even as indices grind higher, leadership continues to narrow. Semis, software, comm services remain the flow magnets. Energy, financials, and industrials continue to lag but are the most likely beneficiaries if yields fall again this week.
This is a low-liquidity, high-expectation week. Seasonality favors upside, but positioning and Fed uncertainty keep risks alive. Expect slow trading with sharp pockets of volatility — and don’t underestimate how quickly thin markets can move if the right catalyst hits.
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