Tech Stocks Take Lead in Careful Start to Fed Week: Markets Wrap

(Bloomberg) — Stocks churned at the start of a week in which investors will search for clues on next year’s interest-rate path as they look beyond an all-but-certain cut at the Federal Reserve’s final meeting of 2025. US bonds weakened.

The S&P 500 dipped after the equities benchmark closed within spitting distance of an all-time high. A busy merger Monday buoyed some sectors after International Business Machines Corp announced plans to buy Confluent Inc. for about $9.3 billion in a big bet on enterprise software for AI tools. Paramount Skydance Corp. made a hostile bid for Warner Bros. Discovery Inc. after President Donald Trump raised potential antitrust concerns on Netflix Inc.’s planned takeover of Warner’s Hollywood studios and streaming business.

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US stocks have rebounded in recent weeks after some Fed officials signaled they intend to cut rates for a third straight time on Wednesday. Still, traders are on edge as uncertainty over the pace of easing in 2026 and wariness about the sustainability of an AI-driven rally temper sentiment.

Kevin Hassett, a top candidate to take over the role of Fed chair, said it would be irresponsible for the Federal Reserve to lay out a plan for where it aims to take interest rates over the next six months. The White House National Economic Council Director emphasized the importance of following the economic data on CNBC Monday.

Unease that inflation remains too high has also caused divisions among Fed officials, in a rift that’s been exacerbated by the lack of fresh data during the shutdown. After this week’s likely cut, money markets are leaning toward two more moves by the end of 2026, down from three signaled barely a week ago.

Evercore ISI’s Julian Emanuel says December will bring a season of surprises for investors. While a hawkish cut is widely expected this week, “a divided FOMC makes any pronouncement far less credible than usual.”

US bonds have been on the back foot of late, closing out their worst week in eight months last week amid jitters over the pace of future rate cuts. Economic data and officials’ comments suggest Wednesday’s rate decision is unlikely to be unanimous, with dissent expected from both hawks and doves.

“Labor market weakness, whether due to a downshift in the ‘natural rate of breakeven job growth’ from restrictive immigration policies or because the economy is actually slowing could cause Powell to sound more dovish,” Emanuel wrote.

Looking ahead to the expected end of the Fed’s easing cycle in 2026, Lisa Shalett, chief investment officer of Morgan Stanley’s wealth management arm, says investors are going to pivot to the prospect of “fiscal dominance,” where monetary policy takes a backseat to government spending concerns.

“As investors digest the consequences, potential implications include a steeper yield curve, a 10-year Treasury yield anchored above 4%, higher inflation, wider term premiums and further US dollar debasement,” she said. “This new regime supports positive stock-bond correlations, boosting the need for diversification in real assets, international securities and alternatives.”

Europe underperformed in a global bond market slump after the European Central Bank’s Isabel Schnabel became the first senior official to suggest with any certainty that European rates have reached a floor. US Treasuries extended losses, with the 10-year yield rising five basis point to 4.19%.

“The tone of Chair Powell’s press conference and accompanying statement will be critical,” wrote Deutsche Bank AG strategist Jim Reid. “We expect Powell to emphasize that the hurdle for further cuts in early 2026 is high, signaling a near-term pause. This guidance will be key to maintaining credibility.”

What Bloomberg Strategists Say…

“The market is not positioned for higher US yields, leaving any further selloff in Treasuries exposed to an overhang of longs closing out. Ten-year yields have inched higher, close to the top of the sub-4.20% range seen since the beginning of September. Yet these increases pale into insignificance in the context of the rise in global yields since the start of November, when JGB yields started to move decisively northwards.”

— Simon White, macro strategist. For the full analysis, click here.

For stocks, interviews with 39 investment managers across the US, Asia and Europe showed that a vast majority of allocators were still positioning for a risk-on environment through next year. The thrust of the bet is that resilient global growth, further developments in artificial intelligence, accommodative policy and fiscal stimulus will deliver outsize returns.

Fabien Benchetrit, head of target allocation for France and southern Europe at BNP Paribas Asset Management, said he remains bullish on 2026 but isn’t planning to increase his stock exposure before year-end.

“Like other market participants, we’ve had a good year and it doesn’t make much sense to do it when liquidity typically dries up in the last two weeks of December,” he said. “In terms of AI, 2025 was all about capex, but 2026 will be about these investments delivering revenues, profits and productivity gains.”

In Asian markets, shares in mainland China led gains as the Communist Party’s Politburo made boosting domestic demand its top priority for next year.

Japanese bond yields rose across the curve after data showed that the economy shrank in the three months through September, giving some justification for Prime Minister Sanae Takaichi’s stimulus package announced last month. The figures add an element of complexity to the Bank of Japan’s policy decision next week, but likely won’t derail it from its gradual hiking path.

Corporate News

US President Donald Trump raised potential antitrust concerns around Netflix Inc.’s planned $72 billion acquisition of Warner Bros. Discovery Inc., noting that the market share of the combined entity may pose problems. Paramount Skydance Corp. took its bidding for Warner Bros. public with an offer of $30 a share in cash, topping Netflix’s offer of $27.75 in cash and stock. Shares in CRH Plc., Carvana Co. and Comfort Systems USA Inc. rallied after S&P Dow Jones Indices said they will join the S&P 500 Index before trading opens Dec. 22. President Trump said he would approve an executive order this week on artificial intelligence aimed at limiting state-level policies regulating the technology. Unilever Plc’s spinoff The Magnum Ice Cream Co. was valued lower than some analysts expected in its debut on Monday, as the world’s biggest ice cream company looks to revive its performance as a standalone firm. Pop Mart International Group Ltd. shares dropped the most in over six weeks amid renewed concern that the Chinese toymaker’s US sales growth momentum is slowing. Some of the main moves in markets:

Stocks

The S&P 500 fell 0.1% as of 10:34 a.m. New York time The Nasdaq 100 was little changed The Dow Jones Industrial Average fell 0.2% The Stoxx Europe 600 was little changed The MSCI World Index fell 0.2% Currencies

The Bloomberg Dollar Spot Index rose 0.2% The euro fell 0.1% to $1.1626 The British pound fell 0.1% to $1.3314 The Japanese yen fell 0.4% to 155.89 per dollar Cryptocurrencies

Bitcoin was little changed at $90,154.98 Ether rose 1.1% to $3,120.73 Bonds

The yield on 10-year Treasuries advanced five basis points to 4.19% Germany’s 10-year yield advanced six basis points to 2.86% Britain’s 10-year yield advanced six basis points to 4.54% Commodities

West Texas Intermediate crude fell 1.2% to $59.36 a barrel Spot gold fell 0.2% to $4,188.41 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Joe Easton, Julien Ponthus and Levin Stamm.

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