Market Digests Fed's Third Rate Cut as Economic Momentum Shifts, But Wall Street Remains Cautious

Equities displayed mixed signals today as the central bank concluded its latest monetary policy decision. The Dow Jones Industrial Average gained +0.67%, while the S&P 500 edged higher by +0.34%. The tech-heavy Nasdaq 100, however, faced headwinds, closing fractionally down at -0.01%. The divergence reflected underlying tensions as investors processed the Federal Reserve’s policy stance and its implications for 2026.

The Policy Decision: A Divided Path Forward

In a contentious vote, the Federal Reserve approved its third 25-basis-point rate reduction this year, bringing the benchmark interest rate to a range of 3.5% to 3.75%. The decision proved divisive, with hawkish members opposing any cut while a dovish member advocated for a more aggressive 50-basis-point reduction. Looking ahead, officials signaled only one additional rate cut anticipated throughout 2026—a forecast that underscores persistent caution despite inflation remaining elevated above the 2% target.

The rationale centered on an increasingly softening labor market, which policymakers weighed against stubborn price pressures. This delicate balancing act suggests the Fed’s cutting cycle may be nearing its endpoint, reshaping expectations for monetary accommodation in the year ahead.

Economic Data Paints a More Nuanced Picture

Market support today derived partly from emerging signs of wage pressure moderation. The US Q3 employment cost index rose +0.8% quarter-over-quarter, coming in softer than the anticipated +0.9% gain. This dovish development provided temporary relief, though inflation concerns persist.

Housing markets showed unexpected dynamism. US MBA mortgage applications surged +4.8% in the week ended December 5, yet the composition revealed mixed signals. Purchase mortgage applications declined -2.4%, suggesting cooling home-buying activity, while refinancing surged +14.3% as borrowers locked in rates. The 30-year fixed mortgage rate ticked upward by 1 basis point to 6.33%, indicating mortgage markets have begun pricing in the Fed’s policy outlook.

Initial unemployment claims are expected to tick higher by approximately +29,000 to 220,000 when Thursday’s data arrives, potentially signaling increased labor market slack.

Corporate Earnings Remain a Bright Spot

The S&P 500 earnings season is entering its final lap, with 495 of 500 companies having reported results. According to Bloomberg Intelligence, 83% of companies beat forecasts, putting Q3 on pace for its strongest earnings season since 2021. Third-quarter earnings expanded +14.6%—more than doubling the anticipated +7.2% growth rate. This resilience provided underlying support for equities despite policy uncertainty.

Treasury Markets and Global Rate Dynamics

March 10-year Treasury notes advanced +2 ticks today, with yields declining 2.2 basis points to 4.166%. The benchmark contract rebounded from a 3-month low, benefiting from three supportive currents: softer-than-expected employment cost data (dovish for Fed policy), short covering following crude oil’s tumble to a 2-week low (reducing inflation expectations), and position squaring ahead of this afternoon’s FOMC announcement.

Initially, Treasury investors fretted that a divided FOMC might signal an extended pause in cuts, creating headwinds for bonds. This pressure was compounded by hawkish commentary from European Central Bank officials, which pushed German 10-year bund yields to an 8.75-month peak of 2.895%, up +1.2 basis points.

ECB President Lagarde indicated the central bank would likely elevate its economic growth forecasts at next week’s policy meeting, signaling growing optimism about eurozone prospects. Simultaneously, ECB Governing Council member Simkus remarked that inflation appears close to the 2% medium-term target, implying no urgency for rate adjustments in December or beyond. Swaps currently discount zero probability of a rate cut at the ECB’s December 18 meeting.

European government bond yields climbed broadly. The 10-year UK gilt yield reached a 2.5-week high of 4.554%, up +1.3 basis points to 4.518%.

Individual Stocks: Winners and Losers Take Shape

Losers Leading the Day

Amazon’s expansion of same-day grocery delivery to over 2,300 cities created immediate headwinds for mobile delivery competitors. Maplebear (CART) plummeted more than -6%, while Uber Technologies (UBER) and DoorDash (DASH) each fell more than -4%, reflecting investor concerns about Amazon’s competitive pressure in the perishables segment.

Cryptocurrency-sensitive equities declined as Bitcoin (BTC) retreated nearly -1% to around $89,220. Marathon Holdings (MARA) dropped more than -3%, with Galaxy Digital Holdings (GLXY) and Riot Platforms (RIOT) each shedding more than -2%. MicroStrategy (MSTR) and Coinbase Global (COIN) also declined more than -1%.

AeroVironment (AVAV) tumbled more than -10% after slashing its 2026 adjusted earnings per share guidance to $3.40-$3.55 from $3.60-$3.70, undershooting consensus expectations of $3.63.

GameStop (GME) slid more than -6% following a disappointing Q3 earnings report showing net sales contracting -4.6% year-over-year to $821.0 million. T. Rowe Price Group (TROW) declined more than -3% as assets under management dropped -0.2% month-over-month to $1.79 trillion in November.

Noble Corp Plc (NE) descended more than -3% after JPMorgan Chase initiated a downgrade to neutral from overweight. Biogen (BIIB) fell more than -1% following HSBC’s downgrade to reduce with a price target of $143.

Winners Driving Higher

Photronics (PLAB) exploded higher, surging more than +42% after delivering Q4 adjusted earnings per share of $0.60, substantially exceeding consensus of $0.45, while projecting Q1 adjusted EPS of $0.51-$0.59, ahead of expectations of $0.46.

GE Vernova (GEV) led S&P 500 gainers with a climb of more than +9%, driven by an expanded $10 billion share buyback program and a doubled quarterly dividend to $0.50.

EchoStar (SATS) gained more than +5% after Morgan Stanley upgraded the stock to overweight from equal weight with a $110 price target. Middleby Corp. (MIDD) advanced more than +5% following Jeffries’ upgrade to buy from hold with a $175 target.

Chewy (CHWY) rose more than +2% after reporting Q3 net sales of $3.12 billion, beating consensus expectations of $3.10 billion. PepsiCo (PEP) gained more than +2% after JPMorgan Chase upgraded it to overweight from neutral with a $164 price target. Waters Corp. (WAT) ticked higher by more than +1% following Wolfe Research’s upgrade to outperform from peer perform with a $480 target.

Global Markets Face Headwinds

Overseas bourses retreated today as European and Asian markets absorbed the policy implications. The Euro Stoxx 50 declined -0.21%, while China’s Shanghai Composite closed -0.23% lower. Japan’s Nikkei Stock 225 gave back gains from a 3.5-week high, finishing -0.10% lower.

Looking Ahead

With Q3 earnings season drawing to a close and policy clarity improving, markets now face a critical reassessment of growth and valuation trajectories through 2026. The Fed’s signaling of only one additional cut next year suggests monetary support is gradually being withdrawn, potentially shifting investor focus toward earnings quality and economic resilience.