Stocks Stuck in Wait-and-See Mode Ahead of Fed: Markets Wrap

(Bloomberg) — Stocks are marking a second day of muted trading as traders wait to hear the Federal Reserve’s views on interest rates for 2026 after an expected cut at Wednesday’s policy meeting. Bitcoin slid.

The S&P 500 drifted while the Nasdaq 100 made small moves lower as investors turned away from some of this year’s big AI winners while bidding up industrials and small-caps. The rally in US stocks has stalled this week after traders pulled big bets off the table, with mixed economic signals and divisions among Fed policymakers clouding the outlook for rates. Shares of Microsoft Corp. dropped more than 2% while GE Vernova Inc. was an outlier, notching double-digit gains.

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US bond yields were lower after Bank of Canada held interest rates steady. The BoC said current borrowing costs are appropriate to mitigate the trade war damage. The 10-year rate fell to 4.16% after reaching the highest since the first week of September. 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.

Investors will be hanging on to Fed Chair Jerome Powell’s every word with their attention centered on the latest dot plot and economic projections. Traders are widely anticipating a third straight rate cut at Wednesday’s meeting, but fears have been growing that it will be a “hawkish cut” with further easing in question.

Chris Brigati, chief investment officer at SWBC, expects 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.”

Swaps traders are pricing in two more cuts for next year.

Recent economic data have shown that the US economy is cooling in a manner consistent with what the Fed wants, but not weak enough to accelerate rate cuts, according to Linh Tran, market analyst at XS.com. Inflation is easing but still above target, while the labor market continues to show some resilience.

“This combination provides little incentive for investors to continue buying at elevated valuations, yet does not offer sufficient reason for them to sell aggressively,” Tran wrote. “What the market needs at this moment is a clearer policy signal from the Fed.”

Most analysts expect policymakers to repeat that downside risks to employment “rose in recent months” and that “inflation remains somewhat elevated.” Some also expect the statement to indicate less certainty about the chances of additional rate adjustments in the coming months.

“Cut, but make it hawkish,” said Stephan Kemper, chief investment strategist at BNP Paribas Wealth Management. “Expect a rate cut paired with a ‘long hold’ message — via the statement, dots and Powell — that keeps the door to easing open without promising it.”

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.

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.

“I’m waiting for a hawkish easing,” said Mary-Sol Michel, a director as Swiss Life Private Banking in Paris. “Powell cannot afford not to put some kind of caveat on that cut. I’m therefore expecting some volatility after the rate decision and until we get further US job data on Dec. 16.”

Florent Pochon, the head of cross-asset strategy at Natixis, sees three cuts next year on the back of unemployment spiking in the first quarter.

“The risk for the market is probably a bearish reaction to some kind of hawkish cut from the Fed,” Pochon said. “It could be a good point to buy the dip in the short part of the curve.”

In commodities, West Texas Intermediate crude fell below $58 a barrel on concerns about global oversupply.

What Bloomberg strategists say…

“It would probably take a 2026 dot-plot shift to a 3.125% median — eg two cuts — to represent a dovish surprise from where we are today. Given the intellectual divide on the committee, the impact of swing voters in deciding rates next year will be unusually important, and the dot-plot distribution will provide at least some insight into where the balance of risks may lie.”

— Cameron Crise, Macro Strategist, Markets Live. For the full analysis, click here.

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 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 0.1% as of 1:12 p.m. New York time The Nasdaq 100 fell 0.2% The Dow Jones Industrial Average rose 0.5% The MSCI World Index rose 0.2% Currencies

The Bloomberg Dollar Spot Index fell 0.2% The euro rose 0.3% to $1.1658 The British pound rose 0.3% to $1.3343 The Japanese yen rose 0.3% to 156.34 per dollar Cryptocurrencies

Bitcoin fell 0.2% to $92,439.14 Ether rose 2% to $3,369.84 Bonds

The yield on 10-year Treasuries declined three basis points to 4.16% 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 fell 0.2% to $58.12 a barrel Spot gold fell 0.2% to $4,199.33 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Neil Campling, James Hirai, Julien Ponthus, Levin Stamm and Kwaku Gyasi.

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