Fed Cuts Rates for Third Time This Year, Signals One More in 2026

The S&P 500 Index ($SPX) (SPY) today is down up +0.34%, the Dow Jones Industrials Index ($DOWI) (DIA) is up by +0.67%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.07%.  

In a divided vote, the Federal Reserve approved a third 25-basis-point interest rate reduction this year, setting the benchmark to a range of 3.5% to 3.75%. The decision faced opposition from both hawks, who preferred no change, and a dove who argued for a larger, half-percentage-point cut. Despite inflation remaining above the 2% target, officials anticipate only one further cut in 2026, consistent with previous projections, citing a softening job market.

Before the rate cut was announced, stocks found some support today amid signs of easing wage pressures, which are dovish for Fed policy, after the US Q3 employment cost index rose by +0.8% q/q, slightly weaker than the +0.9% q/q expected.

US MBA mortgage applications rose +4.8% in the week ended December 5, with the purchase mortgage sub-index down -2.4% and the refinancing mortgage sub-index up +14.3%.  The average 30-year fixed rate mortgage rose +1 bp to 6.33% from 6.32% in the prior week.

On Thursday, weekly initial unemployment claims are expected to increase by +29,000 to 220,000. 

Q3 corporate earnings season is drawing to a close as 495 of the 500 S&P companies have released results.  According to Bloomberg Intelligence, 83% of reporting S&P 500 companies exceeded forecasts, on course for the best quarter since 2021.  Q3 earnings rose +14.6%, more than doubling expectations of +7.2% y/y. 

Overseas stock markets are lower today.  The Euro Stoxx 50 is down -0.21%.  China’s Shanghai Composite closed down -0.23%.  Japan’s Nikkei Stock 225 fell from a 3.5-week high and closed down -0.10%.

Interest Rates

March 10-year T-notes (ZNH6) today are up +2 ticks.  The 10-year T-note yield is down -2.2 bp to 4.166%.  Mar T-note futures rebounded from a 3-month low today and moved higher, and the 10-year T-note yield fell from a 3-month high of 4.207%.  T-notes found support after the US Q3 employment index rose less than expected, a dovish factor for Fed policy.  Short covering also emerged in T-notes today after crude oil prices stumbled to a 2-week low, which lowered inflation expectations.  In addition, position squaring ahead of this afternoon’s FOMC results helped push T-note prices higher.

T-notes today were initially under pressure amid concerns that a divided FOMC will signal a hawkish rate cut of -25 bp, but then signal policy will remain on hold for an extended period.  T-notes also saw some negative carryover from hawkish ECB comments today, which pushed the German 10-year bund yield to an 8.75-month high. 

European government bond yields are moving higher today.  The 10-year German bund yield climbed to an 8.75-month high of 2.895% and is up by +1.2 bp to 2.862%.  The 10-year UK gilt yield rose to a 2.5-week high of 4.554% and is up by +1.3 bp to 4.518%.

ECB President Lagarde said the ECB will likely raise its economic growth forecasts at next week's policy meeting, reflecting a more optimistic outlook. 

ECB Governing Council member Simkus said, "We have an inflation rate that is more or less close to the 2% target in the medium term, which suggests no need for a change in interest rates, not only at the next ECB meeting in December but also in further meetings."

Swaps are discounting a 0% chance for a -25 bp rate cut by the ECB at its next policy meeting on December 18.

US Stock Movers

Mobile grocery delivery service companies are sliding today after Amazon.com said it has expanded same-day delivery for perishable groceries to over 2,300 cities and towns, with more coming next year. Maplebear (CART) is down more than -6% and Uber Technologies (UBER) is down more than -4% to lead losers in the S&P 500.  Also, DoorDash (DASH) is down more than -4% to lead losers in the Nasdaq 100.

Cryptocurrency-exposed stocks are under pressure today with Bitcoin (^BTCUSD) down nearly -1%.  MARA Holdings (MARA) is down more than -3%, and Galaxy Digital Holdings (GLXY) and Riot Platforms (RIOT) are down more than -2%.  Also, Strategy (MSTR) and Coinbase Global (COIN) are down more than -1%. 

AeroVironment (AVAV) is down more than -10% after cutting its 2026 adjusted EPS forecast to $3.40-$3.55 from a previous forecast of $3.60-$3.70, below the consensus of $3.63. 

GameStop (GME) is down more than -6% after reporting Q3 net sales fell -4.6% y/y to $821.0 million. 

T Rowe Price Group (TROW) is down more than -3% after reporting assets under management in Nov fell -0.2% m/m to $1.79 trillion. 

Noble Corp Plc (NE) is down more than -3% after JPMorgan Chase downgraded the stock to neutral from overweight.

Biogen (BIIB) is down more than -1% after HBSC downgraded the stock to reduce from hold with a price target of $143. 

Photronics (PLAB) is up more than +42% after reporting Q4 adjusted EPS of 60 cents, well above the consensus of 45 cents, and forecasting Q1 adjusted EPS of 51 cents to 59 cents, better than the consensus of 46 cents.

GE Vernova (GEV) is up more than +9% to lead gainers in the S&P 500 after boosting its stock buyback program to $10 billion and doubling its quarterly dividend to 50 cents. 

EchoStar (SATS) is up more than +5% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $110. 

Middleby Corp. (MIDD) is up more than +5% after Jeffries upgraded the stock to buy from hold with a price target of $175.

Chewy (CHWY) is up more than +2% after reporting Q3 net sales of $3.12 billion, better than the consensus of $3.10 billion. 

PepsiCo (PEP) is up more than +2% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $164.

Waters Corp. (WAT) is up more than +1% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $480. 

Earnings Reports(12/10/2025)

Adobe Inc (ADBE), Chewy Inc (CHWY), Nordson Corp (NDSN), Oracle Corp (ORCL), Synopsys Inc (SNPS), Vail Resorts Inc (MTN).