Stocks and Bonds Slide at Start of Big Fed Week: Markets Wrap
(Bloomberg) — Wall Street anxiety halted a four-day rally in US stocks while Treasuries joined a global bond slump ahead of the Federal Reserve’s final meeting of 2025. While an interest-rate cut is all but certain, traders are growing anxious about the pace of next year’s cuts.
The S&P 500 slid 0.3% Monday after the equities benchmark closed within spitting distance of an all-time high. A busy merger Monday failed to bolster the mood after President Donald Trump raised potential antitrust concerns on Netflix Inc.’s planned takeover of the Hollywood studios and streaming business of Warner Bros. Discovery Inc. and Paramount Skydance Corp. stepped in with its own hostile bid.
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Uncertainty over the pace of easing in 2026 and wariness about the sustainability of an AI-driven rally tempered sentiment. US stocks had rebounded in recent weeks after some Fed officials signaled they intend to cut rates for a third straight time on Wednesday.
“Expectations for a quarter-point rate cut have been cemented by continued signs of weakness in the employment market, although it’s certain to be one of the most contentious rate decisions in recent history,” according to BMO’s Ian Lyngen.
Kevin Hassett, a top candidate to take over the role of Fed chair, said it would be irresponsible for the Fed to lay out a plan for where it aims to take interest rates over the next six months. The White House National Economic Council Director emphasized the importance of following the economic data in a CNBC interview Monday.
Unease that inflation remains too high has also caused divisions among Fed officials, in a rift that’s been exacerbated by the lack of fresh data during the shutdown. After this week’s likely cut, money markets are leaning toward two more moves by the end of 2026, down from three signaled barely a week ago.
Evercore ISI’s Julian Emanuel says December will bring a season of surprises for investors, while “a divided FOMC makes any pronouncement far less credible than usual.”
US bonds have been on the back foot of late, closing out their worst week in eight months last week amid jitters over the pace of future rate cuts. Economic data and officials’ comments suggest Wednesday’s rate decision is unlikely to be unanimous, with dissent expected from both hawks and doves. US Treasuries extended losses, with the 10-year yield rising around three basis points to 4.17%.
“Labor market weakness, whether due to a downshift in the ‘natural rate of breakeven job growth’ from restrictive immigration policies or because the economy is actually slowing could cause Powell to sound more dovish,” Emanuel wrote.
What Bloomberg Strategists Say…
“Monday has been the worst day of the week for Treasuries over both the long run — since 1990 — and in 2025. Today’s price action seems to be living up to that pattern of behavior, not only in the US but elsewhere. Since the start of 2022, the US 10-year yield has risen some 2.5% on Mondays and gone largely nowhere on the other days of the week.”
— Cameron Crise, Macro Strategist, Markets Live. For the full analysis, click here.
Looking ahead to the expected end of the Fed’s easing cycle in 2026, Lisa Shalett, chief investment officer of Morgan Stanley’s wealth management arm, says investors will need to pivot to the theme of “fiscal dominance,” where monetary policy takes a backseat to government spending concerns.
“As investors digest the consequences, potential implications include a steeper yield curve, a 10-year Treasury yield anchored above 4%, higher inflation, wider term premiums and further US dollar debasement,” she said. “This new regime supports positive stock-bond correlations, boosting the need for diversification in real assets, international securities and alternatives.”
Europe underperformed in a global bond market slump after the European Central Bank’s Isabel Schnabel became the first senior official to suggest with any certainty that European rates have reached a floor.
“The tone of Chair Powell’s press conference and accompanying statement will be critical,” wrote Deutsche Bank AG strategist Jim Reid. “We expect Powell to emphasize that the hurdle for further cuts in early 2026 is high, signaling a near-term pause. This guidance will be key to maintaining credibility.”
For stocks, interviews with 39 investment managers across the US, Asia and Europe showed that a vast majority of allocators were still positioning for a risk-on environment through next year. The thrust of the bet is that resilient global growth, further developments in artificial intelligence, accommodative policy and fiscal stimulus will deliver outsize returns.
Fabien Benchetrit, head of target allocation for France and southern Europe at BNP Paribas Asset Management, said he remains bullish on 2026 but isn’t planning to increase his stock exposure before year-end.
“Like other market participants, we’ve had a good year and it doesn’t make much sense to do it when liquidity typically dries up in the last two weeks of December,” he said. “In terms of AI, 2025 was all about capex, but 2026 will be about these investments delivering revenues, profits and productivity gains.”
In Asian markets, shares in mainland China led gains as the Communist Party’s Politburo made boosting domestic demand its top priority for next year.
The yen fell after a magnitude-7.6 quake struck off Japan’s northeast coast. Earlier, Japanese bond yields rose across the curve after data showed that the economy shrank in the three months through September, giving some justification for Prime Minister Sanae Takaichi’s stimulus package announced last month. The figures add an element of complexity to the Bank of Japan’s policy decision next week, but likely won’t derail it from its gradual hiking path.
Corporate News
International Business Machines Corp. is buying Confluent Inc. for about $9.3 billion, marking one of its largest takeovers yet and a major bet on enterprise software that artificial intelligence tools need. US President Donald Trump raised potential antitrust concerns around Netflix Inc.’s planned $72 billion acquisition of Warner Bros. Discovery Inc., noting that the market share of the combined entity may pose problems. Paramount Skydance Corp. took its bidding for Warner Bros. public with an offer of $30 a share in cash, topping Netflix’s offer of $27.75 in cash and stock. Shares in CRH Plc and Carvana Co. rallied after S&P Dow Jones Indices said they will join the S&P 500 Index before trading opens Dec. 22. President Trump said he would approve an executive order this week on artificial intelligence aimed at limiting state-level policies regulating the technology. Unilever Plc’s spinoff The Magnum Ice Cream Co. was valued lower than some analysts expected in its debut on Monday, as the world’s biggest ice cream company looks to revive its performance as a standalone firm. Pop Mart International Group Ltd. shares dropped the most in over six weeks amid renewed concern that the Chinese toymaker’s US sales growth momentum is slowing. Some of the main moves in markets:
Stocks
The S&P 500 fell 0.3% as of 4 p.m. New York time The Nasdaq 100 fell 0.2% The Dow Jones Industrial Average fell 0.4% The MSCI World Index fell 0.3% Currencies
The Bloomberg Dollar Spot Index rose 0.1% The euro was little changed at $1.1638 The British pound was little changed at $1.3325 The Japanese yen fell 0.4% to 155.94 per dollar Cryptocurrencies
Bitcoin rose 0.6% to $90,754.92 Ether rose 1.5% to $3,133.03 Bonds
The yield on 10-year Treasuries advanced three basis points to 4.17% Germany’s 10-year yield advanced six basis points to 2.86% Britain’s 10-year yield advanced five basis points to 4.53% Commodities
West Texas Intermediate crude fell 2% to $58.86 a barrel Spot gold fell 0.1% to $4,191.92 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from Andre Janse van Vuuren, Levin Stamm, Joe Easton and Julien Ponthus.
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