Market Rally Fueled by Expectations of Fed Policy Shift and Dovish Economic Signals

Stock markets are showing broad-based strength today as investors anticipate a softer Fed stance in the months ahead. The S&P 500 is up +0.39%, while the Nasdaq 100 leads with a +0.50% gain. The Dow Jones trails slightly at +0.27%. This rebound is reversing losses from the previous Friday, with futures also pointing higher—December E-mini S&P contracts up +0.40% and December E-mini Nasdaq up +0.47%.

What’s Driving Today’s Rally?

The catalyst for today’s optimism stems from multiple dovish signals. Fed Governor Stephen Miran’s comments that the Fed’s current policy is “unnecessarily restrictive” have energized bulls. His emphasis on benign inflation and warning signs in labor markets suggests potential rate cuts are in play. Meanwhile, the 10-year Treasury yield has slipped lower by 3 basis points to 4.16%, supporting equity valuations.

Economic data released this morning also favored the bull case. The December Empire manufacturing index unexpectedly contracted to -3.9, worse than the anticipated 10.0 reading. While this suggests economic weakness, markets interpret it as supportive for the Fed’s eventual pivot to easier policy.

The Week Ahead: Critical Economic Tests

Investors are bracing for a heavy economic calendar that will shape Fed expectations:

Tuesday will see November nonfarm payrolls (forecast: +50,000), jobless rate (expected 4.5%), and average hourly earnings (+0.3% m/m). Additionally, October retail sales reports and December manufacturing PMI readings hit the tape.

Thursday brings weekly initial jobless claims (forecast: down to 225,000) plus November CPI data, with headline inflation expected at +3.1% y/y and core CPI at +3.0% y/y.

Friday wraps the week with November existing home sales data and the University of Michigan consumer sentiment revision.

Markets are currently pricing in only a 27% probability of a 25 basis point Fed rate cut at the January 27-28 FOMC meeting, suggesting cautious optimism rather than aggressive easing bets.

International Markets Send Mixed Signals

Global stock performance is diverging sharply. Europe’s Euro Stoxx 50 is up +0.71%, but Asia’s picture is weaker. China’s Shanghai Composite fell -0.55%, dragged by disappointing economic data—November industrial production eased to +4.8% y/y versus expectations of +5.0%, while retail sales came in at +1.3% y/y, the slowest pace in 2.75 years. Japan’s Nikkei Stock 225 declined -1.31%.

Chinese real estate remains under pressure, with new home prices falling 0.39% m/m for the 30th consecutive month, highlighting structural challenges in the world’s second-largest economy.

Treasury Market Adjustments

March 10-year T-notes are up 7 ticks, with yields contracting 2 basis points to 4.165%. The Empire manufacturing miss and Miran’s dovish rhetoric are providing bid support. However, strength in equities and a steepening yield curve are capping upside gains in Treasuries.

The yield curve has steepened notably since the Fed’s December policy meeting announcement of $40 billion monthly purchases of short-term T-bills, pressuring longer-dated bonds.

European government bonds are also rallying, with the 10-year German bund yield down 1.7 bp to 2.840% and the UK gilt falling 2.2 bp to 4.494%. The ECB faces near-zero odds of a 25 bp cut at Thursday’s meeting, per swap markets.

Individual Stock Highlights

Chip sector surge: KLA Corp soared over +4% following a Jeffries upgrade to buy with a $1,500 target. Micron Technology, Lam Research, and the broader semiconductor complex (NVDA, AMAT, AMD, NXPI, ASML) gained 1-2% on positive sentiment.

Mining strength: Precious metals rallied, with gold and copper up over +1% and silver jumping +3%. Barrick Mining, Newmont, Hecla Mining, and Freeport-McMoRan all posted gains exceeding +1%.

Biotech winner: Immunome surged +23% after announcing positive Phase 3 trial results for Varegacestat in desmoid tumor patients.

Shipping deal optimism: ZIM Integrated Shipping Services jumped +5% after reports that MSC submitted a takeover bid.

Infrastructure and tech upgrades: Akam Technologies rose +4% on a KeyBanc double-upgrade, while Teradyne gained +3% following a Goldman Sachs double-upgrade to buy with a $230 target.

Downside movers: ServiceNow led declines with a -9% plunge after a KeyBanc downgrade to underweight. ARM Holdings fell -3% on a Goldman Sachs sell rating. Texas Instruments, Adobe, and Entegris also posted losses following analyst downgrades.

Earnings Calendar

Companies reporting earnings on December 15, 2025 include Dakota Gold Corp, Lifezone Metals Ltd, Lionsgate Studios Corp, and Triller Group Inc.

Markets are in a holding pattern, anticipating concrete economic data to confirm whether Fed policy accommodation is truly on the horizon.