Central Bank's Third Rate Cut Signals Measured Approach as Markets React to Policy Messaging

The Federal Reserve completed its third interest rate reduction of the year through a contentious vote, lowering the benchmark rate by 25 basis points to a 3.5%-3.75% range. This decision came amid mixed signals within the institution, with inflation still hovering above the 2% target. Powell’s comments regarding future rate path suggested only one additional cut anticipated for 2026, maintaining consistency with prior guidance as officials point to a weakening labor market as justification for the measured pace.

Market Performance and Policy Implications

Market indices displayed mixed reactions to the monetary policy announcement. The Dow Jones Industrial Average posted a +0.67% gain, while the S&P 500 advanced +0.34%. The Nasdaq 100 remained essentially flat, declining just -0.01%, suggesting technology investors remain cautious about the economic outlook implied by the rate trajectory.

Prior to the announcement, equity markets found support from cooling wage pressure signals. The Q3 employment cost index increased +0.8% quarter-over-quarter, undershooting expectations of +0.9% q/q. This softer wage data provided dovish fuel for Fed policy interpretation before the official decision.

Mortgage market dynamics showed upward pressure. The 30-year fixed mortgage rate rose 1 basis point to 6.33%, while MBA mortgage applications increased +4.8% for the week ended December 5. Refinancing activity particularly stood out, with the refi sub-index climbing +14.3%, though purchase applications retreated -2.4%.

Earnings Season Strength Supports Equities

Corporate earnings delivered an impressive finale to Q3, with 495 of 500 S&P companies having reported. Earnings growth reached +14.6% year-over-year, significantly outpacing the +7.2% expectation. Bloomberg Intelligence data indicated 83% of reporting companies surpassed consensus forecasts, positioning this quarter as the strongest since 2021.

Initial unemployment claims are projected to increase by +29,000 to reach 220,000 for the upcoming weekly report on Thursday.

Bond Market Repricing on Policy Signals

Treasury markets rebounded sharply as traders recalibrated expectations around the Fed’s multi-year rate trajectory. The 10-year T-note yield declined 2.2 basis points to 4.166%, with March futures contracts rising +2 ticks after bouncing from a 3-month low. The 10-year yield retreated from its 3-month high of 4.207%.

Multiple factors supported T-note prices: the softer-than-expected employment cost index, short covering following crude oil’s slide to 2-week lows, and position adjustments ahead of the FOMC announcement. However, initial weakness surfaced as concerns about a divided Fed suggesting extended policy pause created uncertainty.

European government bonds moved in the opposite direction. ECB President Lagarde indicated the central bank will likely raise growth forecasts at next week’s policy meeting, signaling renewed optimism. However, ECB Governing Council member Simkus stated the inflation rate is “more or less close to the 2% target in the medium term, suggesting no need for a change in interest rates.”

The 10-year German bund yield climbed to an 8.75-month high of 2.895%, up +1.2 basis points to 2.862%. UK gilts followed suit, with the 10-year yield rising +1.3 basis points to 4.518%. Markets are pricing zero probability of an ECB rate cut at December’s policy meeting.

Tech and Crypto Stocks Under Pressure

Cryptocurrency-exposed equities faced headwinds as Bitcoin declined nearly -1%, trading near $87.33K. Digital asset-linked stocks retreated broadly: Riot Platforms fell -2%, Galaxy Digital Holdings slid -2%, Mara Holdings dropped -3%, and Microstrategy declined -1%. Coinbase Global also lost more than -1%.

Retail and Delivery Dynamics Reshuffled

E-commerce and delivery sector stocks encountered selling pressure following Amazon’s announcement of expanded same-day perishable grocery delivery across 2,300+ cities. Maplebear (formerly Instacart) led declines with a -6% drop, while Uber Technologies fell -4% and DoorDash slipped -4%.

Individual Stock Highlights

Gainers: GE Vernova surged +9% after authorizing a $10 billion buyback program and doubling its quarterly dividend to 50 cents. Photronics soared +42% on Q4 adjusted EPS of 60 cents—well above consensus of 45 cents—and Q1 guidance of 51-59 cents. EchoStar rose +5% following Morgan Stanley’s upgrade to overweight with a $110 price target. Middleby climbed +5% after Jeffries initiated coverage with a “buy” rating and $175 target. Chewy gained +2% after reporting Q3 net sales of $3.12 billion, beating the $3.10 billion consensus. PepsiCo advanced +2% following JPMorgan Chase’s upgrade to overweight with $164 target. Waters gained +1% after Wolfe Research upgraded the stock to outperform with a $480 target.

Decliners: AeroVironment fell -10% after slashing 2026 adjusted EPS guidance to $3.40-$3.55 from $3.60-$3.70. GameStop dropped -6% as Q3 net sales declined -4.6% year-over-year to $821 million. T Rowe Price fell -3% as November assets under management retreated -0.2% monthly to $1.79 trillion. Noble Corp slipped -3% following JPMorgan’s downgrade to neutral. Biogen declined -1% after HSBC downgraded to reduce with a $143 price target.

Global Market Overview

International bourses concluded lower. China’s Shanghai Composite closed down -0.23%, Japan’s Nikkei 225 retreated -0.10% from a 3.5-week high, and Euro Stoxx 50 fell -0.21%.

Scheduled earnings releases for December 10 include Adobe, Chewy, Nordson, Oracle, Synopsys, and Vail Resorts.