Investors Brace For Powell’s Signal – Here’s What A 25-Bps Rate Cut Could Mean For Global Markets

• All of the major U.S. indexes, such as the S&P 500 and Nasdaq Composite, closed at record highs on Tuesday, ahead of the Fed announcement and following a rally driven by a slew of artificial intelligence (AI)- related news.
• The move would also signal a willingness to pursue further easing, as expected by Wall Street in December.
• According to Reflexivity, an AI market research firm used by hedge funds and trading desks, the market will closely watch Fed Chair Jerome Powell's press conference for clues about whether this cut represents "fine-tuning" or the start of a new easing cycle.

The U.S. Federal Reserve is expected to deliver a quarter-point rate cut following its two-day meeting on Wednesday, with analysts and investors expecting global markets to be well positioned to react positively to the move.

All of the major U.S. indexes, such as the S&P 500 and Nasdaq Composite, closed at record highs on Tuesday, ahead of the announcement and following a rally driven by a slew of artificial intelligence (AI)- related news from big companies, including Nvidia and Microsoft.

The move would also signal a willingness to pursue further easing, as expected by Wall Street in December. It would mean that equities may continue to rise as reduced borrowing costs bolster corporate earnings and stimulate economic expansion.

“The market is expecting a 25-basis-point cut, which is generally the appropriate expectation.  Another 25-basis-point cut in December is quite likely, given the softening labor market,” said Lon Erickson, portfolio manager at Thornburg Investment Management.

Portfolio Manager of the Rational Equity Armor Fund Joe Tigay noted that markets are pricing in a 94.5% chance of a quarter-point cut. “The market already priced in lower rates. The Fed finds itself trapped — if they don’t cut rates, they could trigger major market problems, regardless of inflation concerns,” Tigay said.

Challenges From The Government Shutdown

Concerns have, however, been raised that the federal government shutdown, which has entered its 29th day, could result in challenges for the Federal Reserve to form its monetary policy decisions given the lack of enough data.

The jobs report was last published in September, for August, while the White House said last week that a government shutdown may prevent the release of the October Consumer Price Index (CPI) data. 

“Without the usual government data releases (like Septembers jobs report) to provide a clear labor market signal, investors are turning to private sector indicators,” Tigay said.

He added that the recent surge in bank earnings, which have shown strength and resilience, is being interpreted as a significant positive sign for underlying economic health and stability, even as central banks continue on a path of coordinated global easing.

Some Hint At Volatility Post Fed Announcement

With insufficient data and a highly visible AI-based rally, there is a concern of a sell-off or higher volatility during trading hours on Wednesday. According to Reflexivity, an AI market research firm used by hedge funds and trading desks, the market will closely watch Fed Chair Jerome Powell's press conference for clues about whether this cut represents "fine-tuning" or the start of a new easing cycle.

“The durability of current market optimism depends on both concrete progress in geopolitical situations and clear Fed communication about future policy direction,” Reflexivity said.

Chief Global Strategist at Freedom Capital Markets Jay Woods, said that one could see excessive volatility after the press conference, and this is more likely to be a ‘sell the news’ event. “Any sell-off should set us up for a rally later in the year and pick up steam as we head into the final earnings season of 2025,” he added.

“Watch the direction of the market as Powell answers questions and the trend as we close out the day on Wednesday. That should be the tell of the market’s direction going forward the rest of the month,” Woods noted.

Rate Cuts Amid Trade War

The expected rate cut comes at a time of geopolitical talks between the U.S. and other countries, with the former imposing heavy tariffs on global trading partners since the beginning of this year, which has led to a surge in costs for companies and living costs in the U.S.

“The market continues to look through international volatility as it understands that the fundamental trade of the AI story means more to the market than geopolitics,” David Wagner, Head of Equities and Portfolio Manager at Aptus Capital Advisors, said.

U.S. President Donald Trump is currently touring Asia this week and meeting leaders from Malaysia, Japan, and South Korea to discuss trade deals and lower tariffs on U.S. exports. Trump would be meeting China’s President Xi during the Asia-Pacific Economic Cooperation summit on Thursday. 

Annex Wealth Management’s Chief Economist Brian Jacobsen said that the Fed will likely steer clear of geopolitical issues. “They will likely flag whether all the troubles in the world pose a bigger threat to growth or inflation. They did get the sequence of effects from tariffs wrong since they feared the inflation effects more than the growth effects. They should approach those issues much more humbly,” he said.

Meanwhile, U.S. equities rose in Wednesday's premarket trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up 0.24%, the Invesco QQQ Trust ETF (QQQ) rose 0.43%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) gained 0.13%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bullish’ territory.

For updates and corrections, email newsroom[at]stocktwits[dot]com.

Also See: Thermo Fisher To Acquire Clario Holdings In A $9.4B Deal

Share

·

Add us on