The S&P 500 Index ($SPX) (SPY) on Wednesday closed up by +0.67%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +1.05%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.42%.  December E-mini S&P futures (ESZ25) rose +0.66%, and December E-mini Nasdaq futures (NQZ25) rose +0.44%.

Stock indexes shook off early weakness on Wednesday and settled higher, with the S&P 500 posting a 6-week high, the Nasdaq 100 a 5-week high, and the Dow Jones Industrial Average a 3.5-week high.  Stocks rallied on Wednesday after the Fed cut interest rates by 25 bp and Fed Chair Powell took a less hawkish tone than anticipated.  Stocks also found support after the Fed raised its US 2025 GDP forecast and lowered its core PCE price forecast.  In addition, the Fed boosted market liquidity by saying it will purchase $40 billion of T-bills per month to rebuild reserves. 

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.

The FOMC, as expected, cut the fed funds target range by 25 bp to 3.50%-3.75% in a 9-3 vote and said it will consider "the extent and timing of additional adjustments" to interest rates.  The FOMC noted that "job gains have slowed this year" and "downside risks to employment rose in recent months." Also, "inflation has moved up since earlier in the year and remains somewhat elevated."

The Fed's "dot plot" of interest rate projections shows the median forecast for the fed funds rate is 3.375% for the end of 2026, implying one 25 bp rate cut next year, unchanged from September.

The FOMC raised its 2025 GDP estimate to 1.7% from 1.6% in September and raised its 2026 GDP estimate to 2.3% from 1.8% in September. The FOMC cut its 2025 core PCE price estimate to 3.0% from 3.1% in September and cut its 2026 core PCE price estimate to 2.5% from 2.6% in September.

The Fed said it will begin buying $40 billion of Treasury bills per month starting December 12 to rebuild reserves in the financial system, which shrank as it tightened its balance sheet.

Fed Chair Powell signaled the Fed may now pause its interest rate cutting campaign when he said the Fed is now "within a range of plausible estimates of neutral and leave us well positioned to determine the extent and timing of additional adjustments" to rates.  He added that he doesn't think a rate hike is anybody's base case for the Fed's next policy move.

The markets this week will focus on Thursday’s weekly initial unemployment claims, expected to increase by +29,000 to 220,000. 

The markets are discounting a 22% chance that the FOMC will cut the fed funds target range by 25 bp at the January 27-28 FOMC meeting.

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 settled lower on Wednesday.  The Euro Stoxx 50 closed down -0.18%.  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) on Wednesday closed up +4 ticks.  The 10-year T-note yield fell -4.1 bp to 4.147%.  Mar T-note futures rebounded from a 3-month low on Wednesday 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.  T-notes added to their gains after the FOMC cut its 2025 and 2026 US core PCE price estimates and after Fed Chair Powell said that he doesn't think a rate hike is anybody's base case for the Fed's next policy move.  

T-notes were initially under pressure early Wednesday 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 on Wednesday, 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 finished up by +0.1 bp to 2.851%.  The 10-year UK gilt yield rose to a 2.5-week high of 4.554% and is up by +0.1 bp to 4.506%.

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 1% chance for a -25 bp rate cut by the ECB at its next policy meeting on December 18.

US Stock Movers

Chip makers rallied on Wednesday, helping lift the broader market.  Micron Technology (MU) and Marvell Technology (MRVL) closed up more than +4%, and Applied Materials (AMAT) and Qualcomm (QCOM) closed up more than +3%.  Also, Analog Devices (ADI), Broadcom (AVGO), GlobalFoundries (GFS), Lam Research (LRCX), Microchip Technology (MCHP), NXP Semiconductors NV (NXPI), KLA Corp (KLAC), and Texas Instruments (TXN) closed up more than +1%. 

Mobile grocery delivery service companies retreated on Wednesday 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) closed down more than -6% and Uber Technologies (UBER) closed down more than -5% to lead losers in the S&P 500.  Also, DoorDash (DASH) closed down more than -4%.

Photronics (PLAB) closed up more than +45% 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) closed up more than +15% 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) closed up more than +10% after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $110. 

Middleby Corp. (MIDD) closed up more than +9% after Jeffries upgraded the stock to buy from hold with a price target of $175.

American International Group (AIG) closed up more than +6% after Insurance Inside reported that Chubb made an informal takeover offer for the company. 

PepsiCo (PEP) closed up more than +3% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $164.

Waters Corp. (WAT) closed up more than +2% after Wolfe Research upgraded the stock to outperform from peer perform with a price target of $480. 

AeroVironment (AVAV) closed down -13% 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. 

Netflix (NFLX) closed down more than -4% after Paramount said in a letter to Warner Bros. Discovery holders that its offer of $30 per share is superior to Netflix’s offer. 

GameStop (GME) closed down more than -4% after reporting Q3 net sales fell -4.6% y/y to $821.0 million. 

Noble Corp Plc (NE) closed down more than -2% after JPMorgan Chase downgraded the stock to neutral from overweight.

T Rowe Price Group (TROW) closed down more than 1% after reporting that assets under management in Nov fell -0.2% m/m to $1.79 trillion.

Earnings Reports(12/11/2025)

Broadcom Inc (AVGO), Ciena Corp (CIEN), Costco Wholesale Corp (COST), Lululemon Athletica Inc (LULU), RH (RH). 

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