Markets Mixed After Fed Rate Cut; Tech Retreats as Cyclicals Gain

Wall Street experienced a mixed week highlighted by the Federal Reserve’s policy decision and a retreat from technology shares. Illustrative of the week’s volatility, the Dow and the S&P 500 reached record highs mid-week following the Fed’s latest rate cut before retreating at the end of the week. Despite a negative close last Friday, the Dow, the Global Dow and the Russell 2000 ended the week higher, while the NASDAQ and the S&P 500 finished the week in the red. Investors moved out of technology and AI stocks and into more cyclical shares like financials, materials and small-cap stocks. Treasury yields, which move inversely to bond prices, were mixed for the most part, ultimately trending upward by week’s end. The Fed’s overall sentiment that the economy, particularly the labor market, should hold up in 2026 reduced the demand for long-term bonds. Ongoing expectations of a global surplus pulled crude oil prices lower again last week.

FOMC Delivers Third Consecutive Rate Cut; Split Vote Highlights Policy Divide

The Federal Reserve cut the target range for the federal funds rate by 25 basis points to 3.50%-3.75% following its December meeting. The latest reduction was in line with expectations and followed similar reductions in September and October. This most recent reduction brings the target rate range to its lowest level since 2022. The decision to reduce interest rates was not unanimous, with two members voting to maintain the current range, while a third member voted for a 50-basis-point cut. The Fed did not change its projections from September, which call for one more 25-basis-point cut in 2026. In reaching its decision, the Fed noted that job gains had slowed, while inflation moved up since earlier in the year and remained somewhat elevated.

Eye on the Week Ahead

There’s plenty of important economic data released this week as various government agencies try to catch up following the reopening of the federal government. Of particular interest this week is the latest jobs report and the release of the Consumer Price Index.