The week had started cautiously ahead of the Fed decision on Wednesday. As expected, the central bank cut its federal funds rate by a quarter percentage point to a range of 3.50%-3.75%. Chairman Powell’s post-meeting comments were less hawkish than some had been expecting, not eliminating the prospect of one further cut in 2026. In response, stocks rallied on Thursday with both the S&P 500 and Dow Jones Industrial Average hitting new highs.
In contrast, the Nasdaq Composite was weighed down by losses in the tech sector. This came after Oracle’s quarterly capital expenditures overshot expectations, reigniting worries around AI spending. Furthermore, Broadcom warned of lower gross margins for its AI segment, despite record revenues, pushing it to its biggest ever daily drop on Friday, down 11%. The tech losses knocked the S&P 500 from its high and pushed it to a weekly decline of 0.6%, while the Nasdaq shed 1.6%. Gains logged earlier in the week were enough for the Dow Jones to remain in positive territory, adding 1.1% and the small-cap Russell 2000 also rose. Treasury yields had declined following the Fed meeting, but picked up on Friday. The yield on the 10-year note ended up at 4.19%.
It was a similar story in Europe whereby cheer over the Federal Reserve rate cut was offset by the AI worries. For the week the pan-European STOXX 600 was roughly flat, with banks and travel and leisure stocks amongst the best performers, while luxury stocks were amongst the worst performers. Regional performance was mixed, with Germany’s DAX index rising while French and UK indices saw losses. On Thursday the Swiss National Bank left its policy rate at 0%, even with recent inflation being lower than expected. This week both the European Central Bank and Bank of England will meet, with markets expecting the ECB to keep rates on hold but a cut from the BoE.
Another central bank that meets this week is the Bank of Japan, in which it is widely believed to hike its policy rate for the first time since January, as tariff worries have faded. For the week, the Nikkei 225 added 0.7%, with gains dampened by losses in tech names. Meanwhile the broader Topix gained 1.8% with it setting a new all-time high. Chinese stock markets were weaker, amid some profit-taking after the recent gains, with the Shanghai Composite dropping 0.3%. Although China’s consumer price index rose 0.7% year-on-year in November, a 21-month high, the producer price index once again remained in deflation, underscoring the challenges faced.