Weekly Update: What's Next as Fed Eases

Last week, markets were shaped by the Federal Reserve's December 10th meeting, where policymakers cut rates by a quarter point while projecting fewer cuts ahead and signaling a potential pause in 2026. 

 

The 9-3 vote reflected growing uncertainty about policy easing. Markets rallied initially, but gains faded as long-term bond yields remained elevated and tech stocks showed renewed volatility.

 

With economic data still catching up after earlier government delays, market focus centered on Fed communications, interest rate dynamics, and selective corporate headlines like the Netflix and Warner Bros. Discovery merger. Here's what you need to know.

 

Stock Index Performance 

 

• The S&P 500 declined 0.63%. 
• The Nasdaq 100 slumped 1.93%. 
• The Dow Jones Industrial Average climbed 1.05%.

 

Rate Cut, Reality Check

 

• The Fed delivered its third consecutive 25-basis-point cut, lowering rates to 3.50–3.75%, but with a hawkish edge. Three officials dissented — the most pushback in years — while policymakers' updated forecasts projected only one additional cut through 2026. Fed Chair Jerome Powell's post-meeting remarks reinforced a higher bar for further easing, forcing markets to reconcile near-term accommodation with a structurally tighter path ahead.
• The decision came amid a continued data blackout. Government shutdown delays pushed key inflation and employment reports into late December and January, forcing the Fed to rely on business surveys showing solid but slowing growth and a cooling labor market. Members essentially front-ran the data, betting this cut provides insurance rather than launching a sustained easing cycle.
• Equity markets entered the Federal Open Market Committee (FOMC) meeting near record highs but left facing headwinds. The Fed's updated outlook (which signaled a shallower 2026 interest rate-cutting path than initially hoped for), coupled with elevated long-term Treasury yields, prompted a steepening of the yield curve and put noticeable pressure on high-duration growth stocks.
• Corporate news intensified the debate. An $80-billion-plus Netflix and Warner Bros. Discovery merger proposal drove sharp media stock repricing, while Oracle's weak cloud and AI guidance fueled skepticism about AI monetization timelines. The AI trade now faces scrutiny as investors question whether valuations can survive flatter earnings growth and higher-for-longer rates through 2026.

 

The Week Ahead 

 

• Shutdown-delayed November payrolls (Dec. 16), October retail sales (Dec. 16), and November Consumer Price Index (Dec. 18) will be released. Markets expect well below September’s 120,000 jobs added and 3% inflation and will face a reckoning if numbers run hot. Any upside surprise would upend the Fed's dovish 2026 path and hammer long-duration equities and credit.
• The European Central Bank (ECB), Bank of England, and Bank of Japan meet this week alongside flash Purchasing Managers’ Index (PMI) releases, testing whether central banks can ease policy while still keeping economic growth strong enough to support investors’ shift into cyclical and value stocks. Dovish signals with solid data would validate that. Hawkish surprises or weak activity could tighten conditions fast, unleashing year-end volatility.

 

The current backdrop demands patience and discipline. Quality diversification and long-term investing can be the best defense against near-term volatility while positioning yourself for the opportunities ahead.

 

We're monitoring developments closely and are here to help you navigate whatever the data brings. As always, please reach out if have questions.