US stocks are continuing their upward momentum as traders eagerly await the Federal Reserve’s interest rate decision, expected later today. With the S&P 500 hitting new highs and major players like Nvidia Corp. and Apple Inc. leading the charge, optimism is sweeping across Wall Street. But the key question now is: what’s next for markets after the Fed’s move?
The Fed Rate Cut: What to Expect
As traders digest the latest market movements, all eyes are on the Federal Reserve and its decision on interest rates. The expectation is that the Fed will announce a quarter-point rate cut during its meeting on Thursday, which would mark a shift in the central bank’s policy. This comes after months of speculation and anticipation regarding the future of US monetary policy.
The S&P 500 rose by 0.5%, adding to its record-high gains from earlier in the week. Meanwhile, Nvidia and Apple have seen significant upticks in stock prices, helping to drive the broader market rally. With Treasury yields dipping following Wednesday’s dramatic selloff, the 10-year yield now hovers around 4.36%, indicating a more cautious outlook for interest rates.
The dollar has also softened, reflecting the market’s expectation of a more dovish Federal Reserve in the months ahead. At the same time, unemployment benefit applications in the US have risen slightly, hinting at a potential slowdown in the labour market. Despite these mixed signals, the key focus remains on the Fed’s decision.
Traders Look Beyond the Rate Cut
While the anticipated rate cut has been priced in, the real action is expected in the Fed’s communication. Traders are eager to hear what Chair Jerome Powell has to say about the outlook for the US economy in the coming months. The big question is not just about today’s rate cut, but what comes next. Specifically, Powell will likely be pressed on how Trump’s return to the White House could influence inflation and economic growth.
James Vokins, a portfolio manager at Aviva Investors, highlighted this uncertainty in a recent interview. He noted that, while the rate cut is expected, “the more interesting aspect is the Fed’s guidance on December and next year.” Powell’s communication strategy will be critical—he must walk a fine line, balancing optimism about the economy with caution about inflation.
The Impact of Trump’s Policies on Inflation
As traders weigh the implications of the Fed’s actions, one key factor complicating the outlook is the potential return of Donald Trump to the White House. Markets have already started to price in the possibility that Trump’s economic policies may fuel inflation, which could undermine the Fed’s efforts to keep prices in check.
In fact, money markets are now betting that the Fed will make fewer cuts in the years ahead due to the potential for inflationary pressure under Trump’s leadership. As of now, expectations are for a 1 percentage point cut by September 2025, down slightly from earlier predictions of a 1.1 percentage point reduction.
While Trump’s policies could introduce some turbulence in the short term, Evercore ISI strategists believe that the market rally is far from over. The firm’s analysts suggest that deregulation in Washington could provide a significant boost to the S&P 500, with an 11% upside projected through the middle of 2025. This aligns with their view that the current bull market is still in its infancy, driven by expectations of policy reforms and lower corporate taxes.
Global Central Bank Actions: A Broader Picture
While the Fed’s actions dominate US markets, the rest of the world is also responding to economic pressures with monetary easing. In the UK, the Bank of England recently cut its key interest rate by 25 basis points to 4.75%, signalling a gradual shift towards lower borrowing costs. Governor Andrew Bailey indicated that this trend could continue, with inflationary pressures expected to persist following recent changes in fiscal policy.
Meanwhile, in the Czech Republic, policymakers have made their eighth consecutive interest-rate cut, responding to weak economic growth and easing inflation concerns. These moves reflect a broader trend of central banks around the world adopting more dovish policies to support growth amid uncertainty.
Corporate Highlights: Winners and Losers
In corporate news, several companies are making waves in the market with strong earnings reports and optimistic guidance:
- Lyft Inc. shares surged following the company’s strong earnings forecast for the current quarter and the full year. The ride-hailing service has been focusing on attracting more commuters, and it seems to be paying off.
- Qualcomm Inc. also delivered an upbeat sales forecast, suggesting that there are still bright spots in the mobile device industry despite some global headwinds.
- Carlyle Group Inc. showed progress in margins and earnings, even as shareholder profits from deal exits remained muted.
- Ralph Lauren Corp. raised its full-year outlook, citing strong sales in Europe and Asia. The company also expects a solid holiday shopping season, further bolstering its bullish stance.
- Moderna Inc. exceeded analysts’ expectations with better-than-expected profits and sales in Q3, driven by early sales of the current season’s COVID-19 boosters.
These earnings reports are contributing to the broader optimism in the markets, even as Fed policy remains the focal point.
Key Events Ahead: What to Watch
Looking ahead, there are a few key events that could shape market sentiment in the coming days:
- Fed rate decision (Thursday): Traders are eagerly awaiting the central bank’s announcement and Jerome Powell’s press conference for insights into future policy directions.
- US University of Michigan consumer sentiment (Friday): The report will offer important clues on the health of the US consumer and the broader economy.
The Bigger Picture: Navigating Market Uncertainty
As we digest today’s market moves, one thing is clear: stock markets are at a critical juncture. The next steps taken by the Federal Reserve could dictate the trajectory of the S&P 500 and broader equity markets for months to come. But beyond the Fed’s actions, global economic trends, corporate earnings, and political shifts—particularly the potential return of Donald Trump—are likely to play a crucial role in shaping the market landscape.
Whether you’re a trader or long-term investor, the key takeaway is that uncertainty breeds opportunity. By staying informed on Fed policy, economic data, and global developments, investors can position themselves to make the most of any market shifts. The future may be uncertain, but the smart money is always prepared.
