Wall Street Taps the Brakes as Fed Rate Cut Decision Looms

CNBC, Bloomberg, AP, and Reuters contributed to this report.

The stock market took a small step back Monday as investors hit pause ahead of the Federal Reserve’s final interest rate decision of the year.

The S&P 500 slipped about 0.3%–0.4%, the Dow Jones industrial average dropped roughly 200 points (0.3%–0.4%), and the Nasdaq composite eased around 0.2%–0.3%. All three indexes are still hovering near record highs, but traders clearly didn’t feel like making big bets before hearing from the Fed on Wednesday.

The drag on stocks came mostly from the 10-year Treasury yield, which continued to edge higher, up to around 4.18%. That’s notable because yields have been rising even as Wall Street is increasingly convinced the Fed will cut rates by 0.25 percentage points this week.

According to futures tracked by the CME FedWatch tool, markets are pricing in roughly an 85%–90% chance of a cut — up sharply from about two-thirds just a month ago. The Fed already trimmed rates in September and October, and traders are hoping for a third straight move.

Recent stock gains reflect that optimism. The S&P 500 and Nasdaq just wrapped up two straight positive weeks and four-day winning streaks, while the Dow has logged gains in three of its last four sessions.

But higher bond yields and lingering inflation worries are keeping enthusiasm in check. Investors are less worried about whether the Fed cuts this week than what it signals about 2026 and beyond.

As Stephen Kolano, chief investment officer at Integrated Partners, put it:

“The market action you’ve seen the last week or two is basically pricing in a 25-basis-point cut. If, for some very unlikely reason, they don’t cut, markets could be down 2%–3%.”

Most expect Fed Chair Jerome Powell to stress that future moves will depend on the data, especially after recent reports showed both cooling inflation and a softening labor market. If the Fed hints that rate cuts in 2026 will be fewer or slower than hoped, that could pressure stocks in the first half of next year.

Even on a cautious day, there was plenty of action under the surface.

• Tech stayed strong.
  Broadcom jumped around 2% to a record high after reports that Microsoft is in talks to shift part of its custom chip business to the company.
• Big deal in data.
  Confluent soared close to 30% after IBM agreed to buy it in a deal valued around $11 billion, betting big on data streaming and AI-related software. IBM shares dipped slightly to flat.
• Media drama in Hollywood.
  Paramount Skydance launched a hostile bid straight to shareholders to buy Warner Bros. Discovery for $30 a share in cash, trying to top Netflix’s earlier cash-and-stock offer. Warner Bros. Discovery jumped, Paramount Skydance rose, and Netflix slipped as investors weighed regulatory and antitrust risks.
• Index winners.
  Carvana, CRH, and Comfort Systems USA all rallied after learning they’ll join the S&P 500 on Dec. 22, forcing index funds and ETFs to buy their shares.
• Biotech rocket.
  Structure Therapeutics doubled, surging more than 100% after announcing positive results for its experimental obesity drug aleniglipron.
• Chip rally continues.
  The iShares Semiconductor ETF (SOXX) hit a fresh record, helped by gains in Broadcom and other chip names.

Meanwhile, 22 stocks in the S&P 500 hit new 52-week highs, including Electronic Arts, Ross Stores, Citigroup, Goldman Sachs, Rockwell Automation and Broadcom. A smaller group — names like General Mills, McCormick, Procter & Gamble and Alexandria Real Estate — sank to new 52-week lows.

Wednesday is the main event. The Fed is widely expected to cut rates again, but the tone of Powell’s press conference will be crucial:

• If he leans dovish and suggests more easing is likely next year, stocks could get another leg higher.
• If he sounds cautious and pushes expectations for further cuts into late 2026, investors may rethink how much they’re willing to pay for stocks at record levels.

For now, the market is basically idling near the top of the range — not crashing, not ripping higher — waiting to see if the Fed gives it the green light to keep climbing or a reminder that the fight against inflation still isn’t over.