US stocks fall ahead of anticipated Fed rate cut

U.S. stocks closed lower on Monday 9 December as investors adopted a cautious stance ahead of the Federal Reserve monetary policy update on Wednesday. Most S&P 500 industry sectors finished in the red, while Treasury yields gained, reflecting broader market uncertainty around the central bank’s next moves.

Fed rate expectations and monetary policy anxiety

Expectations for a December rate cut were solidified after moderate consumer spending data at the end of the third quarter. However, investors remain focused on future policy moves from what is expected to be the most divided Fed in years.

“It’ll be hard for the market to find a direction that it wants to follow until after the Fed meeting,” said Carol Schleif, chief market strategist at BMO Private Wealth. “We just came off a really strong earnings season and we won’t have earnings again for another four weeks. The only thing that the market really has to hang its hat on or to point to is the Fed.”

The Fed is widely expected to announce a quarter-point cut to the federal funds rate tomorrow — a modest adjustment that typically lowers borrowing costs while the central bank continues to balance its dual mandate of maximising employment and controlling inflation, both of which influence Americans’ job prospects and the prices they pay.

After the Fed’s last meeting on 28-29 October, several policymakers said they would prefer to keep rates unchanged in December, briefly downgrading the odds of a third rate cut below 30%.

Influence of Fed officials

John Williams, president of the New York Fed, said that this year’s uptick in inflation appears temporary, driven by Trump’s tariffs, and is likely to fade by the middle of 2026.

As a result, “I still see room for a further adjustment” in the Fed’s short-term rate, Williams said. As president of the New York Fed and vice chair of the rate-setting committee, Williams votes on every interest rate decision and is close to Chair Powell. Analysts said it was unlikely Williams would have made such a statement without Powell’s support. Investors rapidly lifted the odds of a cut, which now are at 89%, according to CME Fedwatch.

“You’re seeing the power of the chair,” said Nathan Sheets, chief global economist at Citi and also a former top Fed staffer. “Members of the committee, my instinct is, are wanting to underscore their support for Powell.”

Treasury yields react to global events

Meanwhile, higher yields on U.S. Treasury bonds also added some pressure on equities. The U.S. 10-year Treasury yield rose soon after a powerful earthquake struck off the coast of Japan before U.S. stock trading had opened.

Market snapshot

The Dow Jones Industrial Average fell 215.67 points (0.45%) to 47,739.32, the S&P 500 declined 23.89 points (0.35%) to 6,846.51 and the Nasdaq Composite lost 32.22 points (0.14%) to 23,545.90.

Declining issues outpaced advancers by a 2.04-to-1 ratio on the NYSE, which recorded 167 new highs and 68 new lows. The Nasdaq saw 2,092 stocks rise and 2,672 fell as declining issues outnumbered advancers by a 1.28-to-1 ratio. The S&P 500 posted 20 new 52-week highs and 10 new lows, while the Nasdaq Composite recorded 149 new highs and 79 new lows.

On U.S. exchanges, 16.12 billion shares changed hands, below the 17.52 billion average for the last 20 sessions.

Corporate stocks and major movers

Paramount Skydance’s $108.4 billion hostile offer for Warner Bros Discover aimed to outbid Netflix, lifting Warner Bros Discovery shares 4.4%, while Paramount’s shares jumped 9% and Netflix stock dropped 3.4%.

Netflix was a key drag on the S&P 500 Communication Services Index which fell 1.8%, the  worst-performing sector among the S&P 500’s 11 major industry sectors.

Technology was the only advancing sector, adding 0.9% with boosts from Microsoft, Nvidia, and Broadcom.

Google parent Alphabet fell more than 2%, marking the biggest drag on the communications services index, followed by Meta Platforms.

Chipmaker Marvell Technology shares slid 7% after used-car dealer Carvana secured a spot in the S&P 500 instead. Carvana shares jumped 12%.

Confluent shares surged 29% after IBM agreed to acquire the data-infrastructure company for approximately $11 billion. IBM shares rose a modest 0.4%.

Tesla fell 3% after Morgan Stanley issued a bearish view on the electric-vehicle maker.

Also on Monday, Oppenheimer forecast a Street-high year-end 2026 S&P 500 target of 8,100 points, citing strong earnings and macro resilience.

Upcoming earnings and AI developments

Later this week, the focus will turn to tech sector valuations, as Broadcom and Oracle report earnings, with investors increasingly worried about debt-funded artificial intelligence spending.

In a move BMO’s Schleif said would benefit AI-focused companies, U.S. President Donald Trump announced he will sign an executive order creating a single national rule for artificial intelligence, replacing disparate laws passed by U.S. states.

Broader macro sentiment and Fed politics

Broader monetary-policy uncertainty is rising as investors get ready for a possible leadership shift at the Fed and an expected rate cut.

Markets widely expect a 25-basis point rate cut on Wednesday, but key attention is on Powell’s guidance and how the dot plot will lay out for 2026.

Markets are predicting 77 basis points of easing through the end of 2026, meaning two additional cuts after December.

The Fed is expected to adopt a semi-hawkish tone this week, cautioning that subsequent rate cuts will be higher. Anything that even sounds vaguely dovish will be a surprise and could prompt volatility.

Bond investors are positioning for a shallow easing cycle, shifting from long-duration Treasuries into intermediate maturities.

White House economic adviser Kevin Hassett, a top candidate to succeed Powell, said that the Fed should continue to lower interest rates, adding more complexity to what is likely to be a complex Fed decision day.

Analysts generally expect that if Hassett is appointed as the next Fed chair, he will pursue a dovish stance as chair, but markets are not so certain.

The unsettled mood has kept stocks mostly trading sideways and European futures point to a lacklustre opening is on the cards, although chip stocks might be worth keeping an eye on.

Global market notes

President Donald Trump said the United States will allow Nvidia’s H200 processors, its second-best artificial intelligence chips, to be exported to China, subject to a 25% fee on such sales.

The Australian dollar was choppy after the country’s central bank held rates unchanged.

The yen steadied after briefly weakening on Japan’s earthquake news. Thankfully, the impact was limited as Japanese authorities quickly lifted tsunami warnings.

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