Fed Delivers Expected Rate Cut While Signaling End to Balance Sheet Reduction

The S&P 500 Index ($SPX) (SPY) today is up by +0.13%, the Dow Jones Industrials Index ($DOWI) (DIA) is up by +0.23%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +0.53%.  

The Federal Reserve delivered a widely anticipated policy decision this afternoon, marking its second consecutive interest rate reduction. The Federal Open Market Committee (FOMC) approved the cut—setting the benchmark rate in the 3.75%-4% range—despite having limited visibility on the recent economic landscape due to the government shutdown. Furthermore, the Fed revealed a significant change to its balance sheet strategy: it will end the process of quantitative tightening (the reduction of its asset purchases) on December 1. The rate decision was passed with a vote of 10 to 2.

US stock indexes are climbing today, with the S&P 500, the Dow Jones Industrials, and the Nasdaq 100 posting new all-time highs.  Easing global trade tensions are supporting gains in stocks today after President Trump said he expects to lower tariffs on Chinese goods over the fentanyl crisis.  The Wall Street Journal reported late Tuesday that President Trump was considering cutting the 20% tariff to as low as 10% on Chinese goods as he expects China would be “doing things” and work with him directly to address the export of precursor chemicals critical to manufacturing fentanyl.  Also, the US and South Korea finalized a trade deal today that will see South Korea make $150 billion in shipbuilding investments in the US, and the US will cap tariffs on South Korean goods at 15%.

Strength in semiconductor stocks is also supportive for the broader market today, led by a +4% jump in Nvidia, after President Trump said he was open to providing China with access to Nvidia’s Blackwell AI processor as part of a trade deal.  Chinese Foreign Ministry spokesman Guo Jiakun said China was ready to “inject fresh momentum” into the US relationship. 

US MBA mortgage applications rose +7.1% in the week ended October 24, with the purchase mortgage sub-index up +4.5% and the refinancing sub-index up +9.3%.  The average 30-year fixed rate mortgage fell -7 bp to a 13-month low of 6.30% from 6.37% in the prior week.

US Sep pending home sales were unchanged m/m, weaker than expectations of a +1.2% m/m increase.

Stocks have carry-over support from Monday’s news that US and Chinese negotiators, who met over the weekend in Malaysia, reached a tentative trade agreement that is expected to be officially announced at Thursday’s summit between Presidents Trump and Xi on the sidelines of the APEC conference in South Korea.  Treasury Secretary Bessent said the agreement means the US threat of a 100% tariff on US imports from China, set to start November 1, is “effectively off the table.” Meanwhile, China agreed not to restrict the export of rare earth metals for at least one year and to buy a “substantial” amount of US soybeans.  The two sides also made progress on shipping fees and US demands that China crack down on the export to the US of fentanyl and precursors. The two sides may also reach an agreement that would allow US consumers to continue to access TikTok. 

This is a heavy earnings week, with 173 of the S&P 500 companies reporting earnings.  Notably, five of the Magnificent Seven companies report earnings this week.  Alphabet, Meta, and Microsoft report today, and Apple and Amazon.com report on Thursday.  Q3 earnings have been running strong so far.  According to Bloomberg Intelligence, 84% of the S&P 500 companies that have reported so far have beaten forecasts, on course for the best quarter since 2021.  However, Q3 profits are expected to have risen by +7.2% y/y, the smallest increase in two years.  Also, Q3 sales growth is projected to slow to +5.9% y/y from +6.4% in Q2.

The markets are monitoring US-Canada trade relations after President Trump said on Saturday that he would impose a new 10% tariff on US imports from Canada as punishment for last week’s anti-tariff advertisement released by the provincial government of Ontario that featured former President Reagan’s criticism of tariffs.  Mr. Trump initially said he was halting US trade negotiations with Canada because of the ad, but he escalated the punishment this past weekend by imposing a new 10% tariff, even though Ontario had agreed to pause the ad campaign. 

Regarding President Trump’s reciprocal tariffs, markets are looking ahead to oral arguments at the Supreme Court scheduled for November 5 on whether the tariffs are legal.  Lower courts have already ruled that Mr. Trump’s reciprocal tariffs are illegal, finding they are based on a specious claim of emergency authority.  If the US Supreme Court upholds those rulings and strikes down the tariffs, then the US government will have to refund the reciprocal tariffs already collected, and Mr. Trump’s power to impose tariffs will be limited to well-founded sections of US trade law.  Observers expect the US Supreme Court to announce its final ruling on the reciprocal tariffs by late 2025 or early 2026.

The US government shutdown continues into its fifth week, weighing on market sentiment and the US economy.  The government shutdown is delaying the release of government reports, including all the recent weekly unemployment claims reports, the September unemployment and payroll report, Aug trade balance, Sep retail sales, Sep PPI, Sep housing starts, Sep industrial production, Sep leading indicators, and others. Bloomberg Economics estimates that 640,000 federal workers will be furloughed during the shutdown, which would expand jobless claims and push the unemployment rate up to 4.7%.

Overseas stock markets are higher today.  The Euro Stoxx 50 rallied to a new record high and is up +0.16%.  China’s Shanghai Composite climbed to a 10-year high and closed up +0.70%.  Japan’s Nikkei Stock 225 rose to a new record high and closed up sharply by +2.17%.

Interest Rates

December 10-year T-notes (ZNZ5) today are down by -3 ticks.  The 10-year T-note yield is up +1.7 bp to 3.993%.  T-note prices are under pressure today amid a stock rally, which has reduced safe-haven demand for government debt.  T-notes also continue to see reduced safe-haven demand after Monday’s news of a preliminary US-China trade agreement.

Losses in T-notes are limited in hopes that the FOMC, at the conclusion of its meeting today, will cut interest rates and end its quantitative tightening regime.  T-note prices have underlying support from the ongoing US government shutdown, which could lead to additional job losses, reduced consumer spending, and a weakened US economy, potentially allowing the Fed to continue cutting interest rates. 

European government bond yields are moving lower today.  The 10-year German bund yield is down -0.3 bp to 2.620%. The 10-year UK gilt yield is down -0.4 bp to 4.396%.

Swaps are discounting a 1% chance for a -25 bp rate cut by the ECB at its next policy meeting on October 30.

US Stock Movers

Nvidia (NVDA) is up more than +4% to lead chipmakers higher today after President Trump said he’ll discuss the chipmaker’s Blackwell artificial intelligence processors with Chinese President Xi Jinping.  Also, Micron Technology (MU) is up more than +4% and KLA Corp (KLAC) is up more than +3%.  In addition, Broadcom (AVGO), Lam Research (LRCX), Applied Materials (AMAT), Advanced Micro Devices (AMD), and Marvell Technology (MRVL) are up more than +2%. 

Bloom Energy (BE) is up more than +21% after reporting Q3 adjusted EPS of 15 cents, stronger than the consensus of 7.9 cents. 

Seagate Technology Holdings Plc (STX) is up more than +16% to lead gainers in the S&P 500 after reporting Q1 adjusted EPS of $2.61, above the consensus of $2.37, and forecasting Q2 adjusted EPS of $2.55-$2.95, the midpoint above the consensus of $2.67.

Teradyne (TER) is up more than +15% after reporting Q3 net revenue of $769.2 million, better than the consensus of $745.1 million, and forecasting Q4 revenue of $920 million-$1.0 billion, well above the consensus of $820.5 million. 

Caterpillar (CAT) is up more than +12% to lead gainers in the Dow Jones Industrials after reporting Q3 adjusted EPS of $4.95, stronger than the consensus of $4.51.

Centene (CNC) is up more than +9% after reporting an unexpected Q3 adjusted EPS profit of 50 cents versus expectations of a loss of -15 cents, and raising its full-year adjusted EPS forecast to $2.00 from $1.75, stronger than the consensus of $1.67. 

Fortive (FTV)  is up more than +7% after raising its full-year adjusted EPS forecast to $2.63-$2.67 from a previous forecast of $2.50-$2.60.

Cognizant Technology Solutions (CTSH) is up more than +5% to lead gainers in the Nasdaq 100 after reporting Q3 revenue of $5.42 billion, stronger than the consensus of $5.32 billion, and raising its full-year revenue forecast to $21.05 billion-$21.10 billion from a previous estimate of $20.7 billion-$21.1 billion, above the consensus of $20.96 billion.

Fiserv (FI) is down more than -41% to lead losers in the S&P 500 after cutting its full-year adjusted EPS estimate to $8.50-$8.60 from a previous estimate of $10.15-$10.30. 

Avantor (AVTR) is down more than -18% after reporting Q3 net sales of $1.62 billion, below the consensus of $1.65 billion.

Garmin Ltd (GRMN) is down more than -12% after forecasting full-year revenue of about $7.10 billion, below the consensus of $7.15 billion.

Verisk Analytics (VRSK) is down more than -10% to lead losers in the Nasdaq 100 after forecasting full-year adjusted EPS of $6.80 to $7.00, the midpoint below the consensus of $7.00.

Smurfit WestRock Plc (SW) is down more than -10% after reporting Q3 adjusted Ebitda of $1.30 billion, weaker than the consensus of $1.32 billion. 

Hormel Foods (HRL) is down more than -6% after cutting its Q4 adjusted EPS estimate to 8 cents to 9 cents from a prior guidance of 38 cents to 40 cents. 

Mondelez International (MDLZ) is down more than -3% after cutting its full-year adjusted EPS estimate to down -15% from a previous estimate of down -10%.

Boeing (BA) is down more than -2% to lead losers in the Dow Jones Industrials after reporting a Q3 core share loss of -$7.47 a share, well below the consensus of a -$4.44 a share loss.

Earnings Reports(10/29/2025)

CVS Health Corp (CVS), ITT Inc (ITT), Penske Automotive Group Inc (PAG), Esab Corp (ESAB), Etsy Inc (ETSY), Timken Co/The (TKR), Ionis Pharmaceuticals Inc (IONS), Phillips 66 (PSX), IDEX Corp (IEX), Virtu Financial Inc (VIRT), Silgan Holdings Inc (SLGN), Centene Corp (CNC), OGE Energy Corp (OGE), Fortive Corp (FTV), Garmin Ltd (GRMN), Boeing Co/The (BA), Hayward Holdings Inc (HAYW), Watsco Inc (WSO), Flex Ltd (FLEX), Gates Industrial Corp PLC (GTES), GE HealthCare Technologies Inc (GEHC), Avantor Inc (AVTR), Old Dominion Freight Line Inc (ODFL), Prosperity Bancshares Inc (PB), Automatic Data Processing Inc (ADP), Clarivate PLC (CLVT), Kraft Heinz Co/The (KHC), Leonardo DRS Inc (DRS), Verisk Analytics Inc (VRSK), Otis Worldwide Corp (OTIS), TE Connectivity PLC (TEL), Fiserv Inc (FI), SiteOne Landscape Supply Inc (SITE), Reynolds Consumer Products Inc (REYN), Clean Harbors Inc (CLH), Littelfuse Inc (LFUS), Avnet Inc (AVT), NiSource Inc (NI), Generac Holdings Inc (GNRC), Entergy Corp (ETR), Cognizant Technology Solutions (CTSH), Smurfit WestRock PLC (SW), United Therapeutics Corp (UTHR), Verizon Communications Inc (VZ), Caterpillar Inc (CAT), Evercore Inc (EVR), Seaboard Corp (SEB), Oshkosh Corp (OSK), Masco Corp (MAS), Kirby Corp (KEX), Align Technology Inc (ALGN), Chipotle Mexican Grill Inc (CMG), EPR Properties (EPR), MercadoLibre Inc (MELI), MGM Resorts International (MGM), FMC Corp (FMC), Hanover Insurance Group Inc/Th (THG), Everest Group Ltd (EG), Extra Space Storage Inc (EXR), CH Robinson Worldwide Inc (CHRW), Cognex Corp (CGNX), American Water Works Co Inc (AWK), Sun Communities Inc (SUI), Mid-America Apartment Community (MAA), eBay Inc (EBAY), Coca-Cola Consolidated Inc (COKE), Tyler Technologies Inc (TYL), Dayforce Inc (DAY).