Stocks, Bonds Jump as Fed Keeps Door Open on Cuts: Markets Wrap
(Bloomberg) — Bonds rose and stocks jumped as the Federal Reserve cut interest rates for a third time, and after Chair Jerome Powell voiced optimism that the economy will strengthen while the inflationary impact from tariffs would be temporary.
The quarter-point reduction in the federal funds rate, along with the authorization of fresh Treasury purchases to supply bank reserves, allowed traders to look past a slight tamping down of expectations for further policy easing. Powell characterized the action as a “further normalization of our policy stance” which should serve to bolster the labor market without whipping up price pressures in the economy.
Subscribe to the Stock Movers Podcast on Apple, Spotify and other Podcast Platforms.
“Overall, a moderately hawkish cut not a max hawkish cut,” according to Evercore ISI’s Krishna Guha. He viewed Powell’s take at the press conference on productivity and growth as “very risk friendly.”
The S&P 500 rose around 0.8%, putting the benchmark on track for a record close. The Nasdaq 100 turned positive while the Russell 2000 gauge of small-caps jumped 1.9% to an all-time high.
Nine out of 12 voters supported the decision to lower rates. The cut and the Fed’s tone matched Wall Street expectations for a “hawkish cut,” while officials left intact their outlook for a single cut in 2026.
The impact of Trump’s on-again, off-again tariff offensive has been a key consideration in how the Fed approaches efforts to bring inflation back down to its 2% target. Without the levies, inflation is probably “in the low 2s” right now, Powell said at the press conference following the decision. And their impact is likely to weaken in the second half of next year.
Powell also underscored the importance of upcoming economic reports while advising caution on assessing household jobs readouts, given technical distortions after a government shutdown caused a data blackout.
“The Fed emphasized that future moves will be data-dependent, shifting firmly to a meeting-by-meeting approach,” said Daniel Siluk, a portfolio manager at Janus Henderson Investors. “Chair Powell reinforced this stance in his press conference, noting that the Committee sees today’s cut as a ‘prudent adjustment’ rather than the start of a new cycle.”
US bond yields were lower. The 10-year rate hit 4.14% after reaching the highest since the first week of September in the morning session. Swaps traders are still pricing in two more cuts over the next year.
Traders may be disregarding Powell and FOMC bears’ outlook given the imminent change in leadership, noted Jeff Schulze, head of economic and market strategy at ClearBridge Investments.
“The Fed’s one rate cut outlook continues to be at odds with pre-meeting futures market pricing of two rate cuts in 2026,” Schulze said. “While we agree with the Fed that the need for further monetary support is limited, we caution investors to put less weight than normal on the dots since a new Fed chair will be at the helm starting in May.”
Chris Brigati, chief investment officer at SWBC, had expected the Fed to telegraph only one cut for next year, given the potential for consumer pricing pressures to reignite.
“The Fed is divided on how to proceed with rate cuts in 2026 given the delicate balance between job market weakness and still elevated inflation,” Brigati said. “There is also uncertainty about the new Fed chair, and that may also add to the central bank’s reluctance to make any major rate moves in the months leading up to Chair Powell’s term ending.”
To Brad Conger, chief investment officer at Hirtle Callaghan, investors should “remain long duration.”
“Neither Powell’s comments nor the Dot Plot should matter for markets. Our view is that the job market is slowing,” he wrote. “The labor weakness will pressure inflation lower (slowly) and justify further cuts. It’s likely that Mr. Hassett will inherit a Fed Funds at 3%.”
What Bloomberg Strategists Say…
“The Fed’s new economic projections show lower estimates for inflation this year and in 2026 while unemployment forecasts were kept unchanged from September. And even as that hasn’t translated into more a more dovish outlook for rates for next year, it cements the Goldilocks narrative that has underpinned equity gains so far.”
—Tatiana Darie, Macro Strategist, Markets Live
For the full analysis, click here.
Among individual movers, shares of Microsoft Corp. dropped around 3% while GE Vernova Inc. was an outlier, rallying to a record and notching double-digit gains.
Earlier, Bank of Canada held interest rates steady saying current borrowing costs were appropriate to mitigate the trade war damage. Globally, a view that rate-cutting cycles are nearing their end has driven yields on a Bloomberg gauge of long-dated government debt to a 16-year high.
For those expecting fireworks after Powell’s speech, Bespoke Investment Group notes that much of his tenure has been marked by steep selloffs in the final hour of trading. Still, over the last five Fed days, the S&P 500 has managed a gain, according to Bespoke’s analysis.
Investors will also be watching Oracle Corp.’s post-market results as questions mount over technology valuations and whether heavy investment in artificial intelligence will ultimately pay off. With its shares down 33% from a high in September, the company has emerged as a barometer for AI risk due to a massive spending spree and weaker credit grades.
The combination of the Fed meeting and Oracle has the potential to break the cautious calm of recent days as traders recalibrate their exposure. From there, the first US payrolls report in months is shaping up to be the next catalyst that will steer direction.
Corporate News:
SpaceX is moving ahead with plans for an initial public offering that would seek to raise significantly more than $30 billion, people familiar with the matter said, in a transaction that would make it the biggest listing of all time. US manufacturer GE Vernova Inc. jumped to a record after boosting its buyback and doubling a dividend. Amazon.com Inc. pledged to invest $35 billion in India over the next five years, boosting its spending in the key growth market to expand in businesses from quick commerce to cloud computing. Chinese artificial intelligence startup DeepSeek has relied on Nvidia Corp. chips that are banned in the country to develop an upcoming AI model, according to a new report in The Information. China Vanke Co. rallied in the equity and credit markets Wednesday after a bondholder meeting included discussion of sweetened terms among plans for a closely watched effort by the distressed builder to delay a note payment. Coupang Chief Executive Officer Park Dae-jun resigned over his failure to prevent South Korea’s largest-ever data breach. Aegon Ltd.’s shares dropped after it unveiled disappointing payouts, overshadowing a confirmation it will move its headquarters to the US. Some of the main moves in markets:
Stocks
The S&P 500 rose 0.8% as of 3:32 p.m. New York time The Nasdaq 100 rose 0.6% The Dow Jones Industrial Average rose 1.3% The MSCI World Index rose 0.8% Currencies
The Bloomberg Dollar Spot Index fell 0.4% The euro rose 0.6% to $1.1692 The British pound rose 0.6% to $1.3379 The Japanese yen rose 0.6% to 155.95 per dollar Cryptocurrencies
Bitcoin rose 0.9% to $93,507.35 Ether rose 2.8% to $3,394.15 Bonds
The yield on 10-year Treasuries declined five basis points to 4.14% Germany’s 10-year yield was little changed at 2.85% Britain’s 10-year yield was little changed at 4.51% Commodities
West Texas Intermediate crude rose 1.3% to $59.03 a barrel Spot gold rose 0.6% to $4,232.49 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from Andre Janse van Vuuren, Kwaku Gyasi, Neil Campling, James Hirai, Julien Ponthus and Levin Stamm.
©2025 Bloomberg L.P.
