Stocks Rebound Amid Fed Cut Optimism

Stocks Rebound Sharply as Bitcoin Recovers Amid Fed Cut Optimism

US equities staged a robust recovery on Tuesday, with the S&P 500 climbing 0.2% to edge within 1% of its October record high, underscoring investor resilience despite elevated valuations and interest rate uncertainties. The Nasdaq Composite advanced 0.6%, propelled by gains in semiconductors, while the Dow Jones Industrial Average rose 0.4% or 185 points. Trading volume remained subdued, with the SPY ETF seeing 51 million shares exchanged against an average of 77 million, reflecting cautious participation in a market buoyed by expectations of Federal Reserve easing.

Corporate Stalwarts Lead the Charge

Boeing and Intel emerged as standout performers, highlighting a rotation towards undervalued industrials and tech recoveries. Boeing's shares surged 10% following comments from its finance chief at a conference, who forecasted increased deliveries of 737 and 787 jets in 2026, paving the way for positive free cash flow in the low single-digit billions. This optimism persists despite a deferred Department of Justice payment shifting from 2025 to 2026, easing immediate cash strains but underscoring ongoing regulatory hurdles. Intel climbed 9%, reaching its highest level since April 2024, amid speculation of Apple outsourcing lower-end chip production as early as 2027 and expansions in Malaysia bolstering its foundry ambitions. These moves signal a broader thaw in speculative assets, with unprofitable tech names and cryptocurrencies still lagging yearly peaks. Bitcoin, meanwhile, fully retraced Monday's sharp decline—its worst since March—to trade above $91,000, though it lingers 17% below November highs. The cryptocurrency's volatility underscores fragility in riskier corners of the market, where overvaluation concerns linger amid a month-long pullback exceeding 30% from peaks. Overseas, Japanese bonds drew attention after hawkish remarks from the Bank of Japan governor, with 30-year yields hitting a record intraday high before easing on a successful auction. In Seoul, stocks rallied as US tariffs on South Korean vehicles dropped to 15% from 25%, retroactive to early November, lifting automakers like Kia and Hyundai over 4%.

Labour Market Signals Pave Way for Policy

PivotRecent Federal Reserve commentary has solidified bets on a December rate cut, with markets pricing an 88% probability of a 25 basis point reduction to 3.50%-3.75%, per CME FedWatch data. "Incremental weakness in the labour market now looks like a bigger issue than the risk of accelerating inflation, clearing the path for the Fed to cut," noted Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers. This dovish tilt contrasts with persistent inflationary pressures on lower-income households, where food, rent, and car prices outpace headline gauges, while wage growth for the bottom cohort decelerates faster than peers. Janasiewicz added, "We see a pretty dim picture," highlighting disparities that could temper aggressive easing.The Fed's preferred inflation measure releases Friday, potentially influencing the December 9-10 meeting's tone. Procter & Gamble's CFO flagged softer consumer spending this quarter, with shares dipping 1.1% to a two-year low, illustrating how rate-sensitive sectors grapple with cautious outlooks. Globally, bonds eye their strongest year since 2020, while AI-driven debt issuance adds pressure, per WSJ analysis. For capital markets, Tuesday's rebound—coupled with Boeing's projected $10 billion cash flow path by late 2026 and Intel's AI node advancements—suggests selective opportunities in cyclicals, though Bitcoin's 30% drawdown warns of volatility ahead.As 2026 looms, strategists like those at Bank of America forecast two more quarter-point cuts in June and July, targeting a 3.00%-3.25% terminal rate, amid evolving fiscal stimuli and tariff impacts. Yet, with Trump's potential Fed chair nominee in focus, policy risks could amplify yield curve steepening. Investors navigating this landscape may favour diversified exposure to industrials and semiconductors, where backlogs—Boeing's $74 billion in defense alone—offer buffers against macroeconomic crosswinds.