Market pauses ahead of expected rate cut
The S&P 500 slipped 0.4% on Monday, with the Nasdaq Composite down 0.2% and the Dow Jones Industrial Average falling 198 points. The pullback comes as investors wait for the Federal Reserve’s final policy meeting of the year, where a widely expected interest rate cut is set to take center stage.
Pressure on equities intensified as the 10-year Treasury yield continued climbing. Despite growing expectations of a cut this week, investors remain uneasy about inflation trends heading into 2026 and whether the Fed will be able to maintain an easing cycle.
Expectations build for another rate cut
Optimism around a policy shift has increased sharply. Following rate cuts in September and October, traders now see an 87% chance of another 25 basis point reduction, up from 67% just a month ago, according to CME’s FedWatch tool.
Recent market performance reflects this confidence. The S&P 500 and Nasdaq both closed last week with four-day winning streaks, while the Dow logged gains in three of its last four sessions. Softer-than-expected September core PCE inflation data — released later than scheduled — added to the momentum.
“The market action you’ve seen the last one or two weeks is essentially baking in the very high likelihood of a 25 basis point cut,” said Stephen Kolano of Integrated Partners. He warned that if the Fed surprises by holding rates steady, stocks could drop 2% to 3% in response.
What to expect from Powell
Beyond this week’s decision, analysts expect Fed Chair Jerome Powell to stress a data-driven approach for 2026. November’s ADP report highlighted a further slowdown in the labor market, reinforcing the case for cautious forward guidance.
Kolano noted that Powell’s term, ending in May 2026, may also influence his communication strategy. “I would not be surprised for Jerome Powell to say, ‘We’ve cut, and now we need to watch the data,’ stopping just short of a hawkish tone,” he said. Should future cuts be delayed into late 2026, he expects renewed downward pressure on equities.
Tech stocks stand out
Amid the broader market dip, technology names showed strength. Broadcom shares rose 2% to a record high following reports that Microsoft is exploring custom chip design with the company.
Confluent surged 29% after IBM agreed to acquire the firm in an $11 billion deal expected to close by mid-2026. Oracle shares also ticked higher ahead of Wednesday’s quarterly earnings report.
