The Federal Reserve cut interest rates by a quarter-point last week as expected, but now is forecasting just a single rate cut in 2026.1 The markets have advanced this year in anticipation of lower rates, but next year may become more challenging if the Fed chooses to remain more restrictive. Disappointing results from both Oracle and Broadcom may signal that the current tech rally is getting tired and momentum is finally fading.
Tip of the Week
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Market Moves
Weekly Market Snapshot:
- S&P 500: -0.6% – markets surged mid-week following the Fed’s rate cut, but weakness from tech stocks dragged the major averages lower.
- Nasdaq 100: -1.9% – sharp drops in Oracle and Broadcom shares following disappointing quarterly earnings results could indicate that the AI rally has peaked.
- Russell 2000: +1.2% – small-caps outperformed following the Fed’s rate cut and are looking like one of the beneficiaries of the rotation out of tech stocks.
- VIX: 15.7 – volatility levels got a little choppy throughout the week but nothing that indicated that fear was setting in.
- Gold: +2.3% – gold broke out mid-week to make a run at a new all-time high before pulling back; safety trades overall saw mixed interest.
- 10-Year Treasury Yield: 4.19% – Treasuries ended up little changed on the week as rate cut gains were offset by the Fed’s hawkish outlook for 2026.
Drivers:
This week was all about the Fed and tech earnings.
Markets initially rallied following the cut, but the lack of support for multiple cuts over the next several quarters dampened the outlook. On the one hand, it’s good that the Fed thinks the economy doesn’t need a great deal of support to keep expanding. On the other hand, stocks have rallied in part due to the expectation for lower rates.
Investors appear to be growing more weary that AI momentum is fizzling out. There were already lingering concerns about overspending on AI development. The weak guidance from heavyweights Oracle2 and Broadcom3 did nothing to calm those fears. We could be entering the phase where tech stock returns from here need to be based on results, not hope.
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Economic Highlights
A couple of the notable themes that stood out this week:
The Fed Cuts, Signals More Progress on Growth & Inflation
Along with its rate decision, the Fed delivered its quarterly economic projections. In it, the Fed sees an uptick in real GDP growth, but doesn’t see inflation getting back to the 2% level until 2027. The wild card in all of this (if it were to play out) is that there is a wide range of projections among the Fed members as to where the Fed Funds rate will end 2026 at. Most of the predictions fall in the range of three rate cuts to one rate hike. The Fed’s Dot Plot is notoriously inaccurate and the central bank usually has no more ability to see the future than you and I do. But it doesn’t create the possibility for a wide range of outcomes over the next year.
source: Federal Reserve
Job Quits Plunge, Signaling Workers Value Security
The majority of labor market data is beginning to tell the same story – job growth is stagnating, if not contracting, and workers are increasingly indicating that job safety is their top priority. For the second straight month, job openings have remained elevated, but the number of job quits plunged in October to their lowest level since the height of the COVID pandemic in 2020.4 This suggests that even in the face of opportunities to move to new jobs, workers seem to want to stay put and keep what they have. We’ve noted that the labor market is increasingly coming under pressure and this data would seem to confirm that.
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Small Business Optimism Improves Slightly
The NFIB Small Business Index ticked up slightly to 99 in November, but remains right around the same level it’s been at since May.5 Right now, small businesses are taking the brunt of job losses and are disproportionately feeling the impact of tariffs. The fact that business optimism is remaining stable despite this is encouraging, but small business owners are clearly not feeling much better about conditions even though rates have fallen and the economy as a whole has remained resilient.
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The Week Ahead
A few themes to watch next week:
In Summary
The latest data is still showing an economy that’s moderating but not yet indicating a real risk of recession. Those conditions are likely to create a favorable backdrop heading into 2026, but U.S. stocks are showing signs of fatigue. We could be nearing the end of the AI rally and beginning the period where momentum slows and tech companies need to start showing results. Those periods tend to come with negative returns as valuations come back down to earth, but a resilient economy could soften the blow.
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