The S&P 500 fell on Monday as investors awaited the Federal Reserve’s final meeting of the year later this week.
The broad market index fell 0.5%, while the Nasdaq Composite slipped 0.4%. The Dow Jones Industrial Average lost 272 points, or 0.6%.
Equity sentiment was driven by the 10-year Treasury yield, continuing its recent rally. The benchmark index rose this month despite the likelihood that the Fed will cut interest rates this week, as investors worry about the state of inflation in the new year and whether the central bank will be able to continue easing.
Traders have been increasingly optimistic in recent weeks that the Fed will cut interest rates again after issuing a quarter-percentage-point cut at its September and October meetings. According to CME’s FedWatch tool, federal funds futures take into account a roughly 90% chance of a decline, up from less than 67% a month ago.
Growing optimism has recently been reflected in stocks, which recorded a second positive week in a row. The S&P 500 and Nasdaq also snapped a four-day winning streak on Friday, while the Dow Jones recorded its third positive session in four sessions. Stocks got a boost on the day after the delayed release of weaker-than-expected personal expenditure price index data for September – one of the last big economic outlays before the Fed’s upcoming monetary policy meeting.
“The market activity that you’ve seen over the last week or two essentially points to a very strong possibility of a 25 basis point downside,” said Stephen Kolano, chief investment officer at Integrated Partners. “For some very unlikely reason, if they don’t cut, forget it. I think the markets are down 2% to 3%.”
In addition to the expected reduction, Kolano expects Fed Chairman Jerome Powell to emphasize a data-dependent stance for the coming months, especially given that last week’s ADP data for November showed an even greater slowdown in the labor market. Not only that, but Powell’s term, which expires in May 2026, could make him “kind of agnostic” to market expectations about the path of interest rates for the next year, he added, according to SEEbiz.
“I wouldn’t be surprised if Jerome Powell said, ‘We’ve cut interest rates and now we’re in a situation where we really have to watch the data,’ and he’s going to stop at the edge of being hawkish because we’ve seen weakness in the labor market,” the investment chief said. “If you start to see interest rate cuts extend further into the [2026.]then [biste] we should start to see, I think, more negative pressure on the market in the first half of the year.”
During Monday, the technology sector was in the positive. Shares of Broadcom jumped 2% to a new record high after The Information reported that Microsoft is in talks with the chipmaker to design custom chips. Meanwhile, shares of Confluent rose 29% after IBM said it would acquire the firm in an $11 billion deal – expected to close by mid-2026. Oracle shares rose nearly 1% amid investor optimism ahead of the firm’s quarterly results on Wednesday.
