Markets Stumble as Powell Puts December Cut in Doubt; Nvidia Hits $5 Trillion Milestone

Markets ended mixed Wednesday after the Fed cut rates as expected but cast doubt on another move this year. Chair Powell’s comment that a December rate cut is “far from” a foregone conclusion rattled investors and reversed early gains in equities. Tech outperformed, led by Nvidia’s historic $5 trillion valuation, but small caps lagged sharply. Bond yields climbed, the dollar strengthened, and volatility rose as the market digested the Fed’s murky outlook amid limited economic data due to the government shutdown.

Key Headlines & Market Movers

• Fed Cuts but Cautions on December: The Fed delivered a second consecutive 25 bp rate cut, bringing the policy rate to 3.75-4%, but Powell struck a hawkish tone in the press conference. He emphasized disagreement within the committee and made clear that policy is not on a preset path, weakening market expectations for a December cut (now around 60% probability, down from nearly certain pre-meeting). With key inflation and labor data missing due to the government shutdown, investors were left flying blind, adding to uncertainty.

Nvidia Hits $5T, Tech Leads on AI Optimism: Nvidia became the first $5 trillion company, rising 3% as President Trump hinted at cooperation with China on chip tech. The AI narrative remains strong, with data center demand also lifting Caterpillar (+11%) on robust power equipment sales. However, caution is building around tech sector valuations, with Ned Davis Research warning the sector is in the top quintile of historical weightings, often a contrarian signal over longer horizons.

• Market Internals Diverge, Small Caps Struggle: Despite strength in megacap tech, broader market breadth remains narrow. The Russell 2000 fell nearly 1% and underperformance in mid-caps continues, suggesting waning participation in the rally. Piper Sandler and Janney analysts flagged overbought technicals and warned of “air pockets” into year-end. Volatility may pick up amid earnings season and further Fed commentary, especially with sentiment stretched and many investors still on the sidelines waiting for a pullback.

S&P 500 Sector Performance

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Looking Ahead

With December policy now in question, markets will remain highly sensitive to incoming economic data, if and when it becomes available. Upcoming earnings from Apple, Amazon, and Microsoft will further test market sentiment, particularly as valuations run hot and Fed support becomes less certain. For now, Powell’s cautious tone suggests volatility may rise as the market recalibrates expectations for year-end policy and positioning.

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