The Federal Reserve's December decision is imminent; the market dilemma behind the stagnation of Tech Stocks rally

The Federal Reserve’s December interest rate decision will be announced on Thursday early morning. This meeting will be the last FOMC meeting of 2025, and market expectations for its direction remain uncertain. Although Powell previously stated that a rate cut is not guaranteed, the market is betting on an 87.2% probability of a rate cut, with expectations of two more cuts in 2026. However, behind these seemingly clear rate cut expectations, there are significant variables that could impact the future market.

Missing Key Data, Federal Reserve Faces Decision Gaps

The 43-day US government shutdown continues to have lingering effects. Due to data gaps, the October non-farm payroll data will be incorporated into the November report released on December 16, and October CPI was not published at all. The November CPI will be released only on December 18. The absence of these two critical reports has undoubtedly deepened internal divisions within the Federal Reserve, making policy directions harder to predict.

So far, available data shows that the US unemployment rate in September rose to 4.4%, and the September PCE Price Index increased by 2.8% year-over-year, both in line with market expectations. US-China trade tensions are easing, which may prove that inflation spikes are “one-off shocks,” providing a basis for the Fed to cut rates.

Rate Cut Expectations Fully Priced In, Nasdaq 100 Gains Stagnate as a Concern

JPMorgan strategist Mislav Matejka and team pointed out in their latest report that once the Fed starts cutting rates, the recent gains in US stocks may stall as investors lock in profits. Market expectations for rate cuts are now fully reflected in stock prices. Tech stocks have already returned to historical highs, leaving limited room for further upside.

Investors tend to protect gains before year-end rather than increase directional exposure. While JPMorgan remains optimistic about the medium-term outlook, believing that the Fed’s dovish stance will support the stock market, short-term risks and opportunities coexist. Low oil prices, slowing wage growth, and easing US tariffs will allow the Fed to loosen policy without fueling inflation. Reduced trade uncertainties, improved Chinese economic prospects, increased fiscal spending in the Eurozone, and accelerated AI adoption in the US are potential drivers to boost stocks next year.

Rising Bond Yields Weigh on Tech Stocks, Market Sentiment Turns Cautious

The surge in US Treasury yields is another constraining factor. The 10-year Treasury yield rose by up to 5.6 bps to 4.196%, while the rate-sensitive 2-year yield increased by 4.4 bps to 3.608%. The 10-year yield is composed of short-term rate expectations and term premiums, which include inflation risk and real risk premiums. The latter reflects concerns over US creditworthiness, policy certainty, asset volatility, and government debt repayment capacity.

On Monday, both the VIX and MOVE indices rose, with the VIX fear index up 8.25% and the MOVE index up 7.46%, indicating a significant increase in market risk premiums. Regardless of the Fed’s decision, rising major bond yields will likely limit further advances in tech stocks.

Technical Pressure, Nasdaq 100 Faces Correction Risks

The Nasdaq 100 daily chart shows resistance around 26,000 points. If the index cannot break through effectively, there is a risk of forming a potential double top pattern. The index could also retest support below 24,000 points. The key level to watch is 25,200 points, which marks the boundary between bullish and bearish sentiment.

Current indicators reflect increasing market divergence between bulls and bears. The stagnation in Nasdaq 100’s rally signals a shift in market sentiment. While the overall upward trend remains intact in the short term, investors should remain cautious and prepare for the possibility of renewed short-term selling pressure.