Market Snapshot is a weekly view from our portfolio managers, offering sharp, thematic insights into the trends shaping markets right now.
This week in numbers
The November reading of the S&P Global UK Composite PMI, painting a stronger-than-expected picture of business activity.
The year Harry Markowitz won the Nobel Prize for Economics for Modern Portfolio Theory.
The date of the next Bank of Japan policy meeting. Expectations are for an interest-rate rise, bucking the global trend.
Past performance is not an indicator of future performance.
This week’s Market Snapshot
US Treasury yields fall as Fed cuts rates again
The central bank takes rates to their lowest level since September 2022.
- US government borrowing costs fall in the wake of the third rate cut of 2025.
- Chair Jerome Powell notes a lack of risk-free paths for policy, given tension between employment and inflation goals.
- The two-year US Treasury note – which is seen as sensitive to monetary policy expectations – posts the largest one-day decline in yields for two months.
The Federal Reserve (Fed) cut interest rates for the third time this year on Wednesday, as the central bank continues to balance risks to inflation with risks to employment.
The Federal Open Market Committee (FOMC) elected to lower the target range for the federal funds rate by 25 basis points to 3.5% – 3.75% percent – the lowest in over three years. This marks the third consecutive reduction in borrowing costs.
Officials also announced plans to initiate purchases of shorter-term Treasury securities to maintain an “ample supply” of reserves over time.
The Committee noted that risks to inflation are tilted to the upside in the short term, while risks to employment are tilted to the downside. This presents the Fed with a challenging balancing act that does not appear to offer a “risk-free” path for policy.
The US unemployment rate rose slightly in September, according to delayed figures released by the US Bureau of Labor Statistics in November1, to 4.4% from 4.3% the previous month. US prices rose at a 3% annual rate in September – coming in well below the high of 9.1% in June 2022 but remaining stubbornly above the central bank’s target rate of 2%.
Markets rallied following the Fed’s announcement.
Markets rallied following the Fed’s announcement. The S&P 500 index closed up 0.7% on Wednesday 10 December, while the Dow Jones rose 1.1% and the Nasdaq Composite by 0.3%2.
Yields on US government debt fell in the wake of the announcement. The two-year US Treasury note – which is seen as sensitive to monetary policy expectations – posted the largest one-day decline in yields in two months3. Yields move inversely to prices.
Figure 1: Two-year yields drop on rate cut
“The Federal Reserve’s decision to cut rates by 25 basis points came as no surprise to markets, which had largely anticipated this move. Investors were braced for a ‘hawkish cut’, a reduction accompanied by signals that the Fed might be done easing or that inflation risks were rising. Instead, Chair Powell emphasised slowing job creation over lingering inflation concerns, which led to a modest decline in market yields,” says RJ Gallo, Deputy CIO, Global Fixed Income.
“Looking ahead, the bond market is set for a bit of a range trade. The impetus from previous Fed cuts that pushed yields lower is fading, and as long as the economy remains stable, significant moves seem unlikely. Our base case for 2026 includes some fiscal expansion, a low probability of recession, and a Fed that is likely on hold for a while,” he adds.
Louise Dudley, Portfolio Manager for Global Equities at Federated Hermes Limited, notes a number of reasons to be optimistic about the outlook for the world’s largest economy as we approach the new year.
“We remain optimistic about the macro environment as we head into 2026. US GDP growth is expected to strengthen, supported by potential deregulation, tax reform, interest rate cuts and the deployment of the remaining US$700bn in infrastructure funding,” she says.
“Corporate earnings should benefit from these tailwinds, alongside AI-driven productivity gains and a possible easing of tariff tensions, which could unlock global economic activity and broaden market participation,” she notes.
This month’s Market Snapshot
Share:
BD016979
