Fed Cut Expected, But Hawkish Signals Could Bite 10/12/2025

HOT stories for today

Market wrap:

• Stocks continued to drift between small gains and losses as investors looked ahead to the Fed’s final meeting of the year. Markets are pricing in a near-certain third consecutive 25-basis-point cut, with futures assigning roughly an 87% probability, according to CME’s FedWatch. Tuesday’s trade was subdued: the S&P 500 slipped 0.1%, the Dow fell nearly 0.4% on JPMorgan weakness, and the Nasdaq added 0.1% on support from Broadcom, Tesla, and Alphabet. A rotation into small caps gained momentum, with the Russell 2000 hitting a fresh intraday record on expectations that lower rates will ease borrowing costs for smaller, rate-sensitive firms. Macro data added a twist as job openings edged higher in October in the first JOLTS update since the summer.
• Corporate guidance updates drove outsized moves. CVS jumped after unveiling a stronger 2026 outlook with revenue projected above $400 billion. JPMorgan dropped nearly 5% after raising its 2026 expense target to $105 billion, with consumer banking chief Marianne Lake citing AI investment and rising credit competition. Silver-linked stocks rallied as the metal hit a record. Across Asia, markets mostly slipped as traders digested China’s inflation data ahead of the Fed decision, with consumer prices nearing a two-year high even as producer deflation deepened. Bitcoin held near $92,000 as selling cooled but demand remained soft.

Fed Cut Expected, But Hawkish Signals Could Bite

• The Fed is expected to cut rates by 25 basis points on Wednesday to 3.5%–3.75%, but with markets already pricing in an 88.6% chance, the move itself may have little impact. Instead, investors are bracing for a possible “hawkish cut”,  easing paired with guidance that the Fed may pause afterward. The dot plot, Powell’s press conference, and updated growth and inflation forecasts will signal how cautious policymakers intend to be. Even with a cut, sentiment could cool into year-end.
• Liquidity remains a pressure point. The Fed’s balance-sheet freeze, offsetting MBS runoff with T-bill purchases, hasn’t fully eased funding tightness. The adequate funds rate has climbed to 3.89%, just 1 bp below the IOER, highlighting strained conditions in money markets. To stabilize reserves, the Fed may need to step up bill buying modestly. Over time, reserves will likely need to expand in line with nominal GDP growth. That implies total monthly bill purchases of roughly $20–30 billion, combining MBS offset and reserve growth, even as the Fed signals a desire to keep the balance sheet steady.

Stocks on the move:
 

• GameStop (GME): Shares fell more than 5% after the company posted softer-than-expected third-quarter revenue. GameStop reported adjusted earnings of 24 cents per share on $821 million in sales, down about 4.5% from a year earlier.
• Cracker Barrel Old Country Store (CBRL): The stock slipped around 9% in after-hours trading after first-quarter revenue came in at $797.2 million, slightly below the $800.3 million analysts expected. The company did report a narrower-than-forecast adjusted loss.
• GE Vernova (GEV): Shares jumped roughly 7% as the company lifted its 2026 revenue outlook to $41–42 billion, well above this year’s expected $36–37 billion. The firm, supported by strong power demand, also doubled its quarterly dividend to 50 cents and authorized a $10 billion share buyback.
• AeroVironment (AVAV): The stock dropped more than 4% after adjusted second-quarter earnings of 44 cents per share missed the 78 cents expected. Revenue of $473 million came in slightly ahead of consensus.

Watchlist: CBRL, AVAV, GEV, GME, BRZE, CHWY, ORCL, NVDA

Key Economic Events Today:

EST time

08:30 am: USD Employment Cost Index
02:00 pm: USD Federal Funds Rate
02:30 pm: USD FOMC Press Conference


Earnings

BMO ( Before Market Open): Chewy Inc. (CHWY), Uranium Energy (UEC)
AMC (After Market Close): Oracle Corp. (ORCL), Adobe (ADBE), Synopsys (SNPS), Vail Resorts (MTN)



The TEFS Analyst team wishes you a successful day!