Markets Brace: Fed’s Mixed Signals, Data Gap, 63% Cut Chance

Main Highlights

• Investors face a challenging week with a confluence of corporate earnings, an incomplete jobs report due to a government shutdown, and Federal Reserve interest rate policy uncertainty.
• Amazon’s strong earnings boosted market indices last week, but upcoming reports from companies like Palantir and AMD are closely watched.
• Federal Reserve Chair Jerome Powell’s remarks have softened expectations for a December interest rate cut, creating market volatility.
• An apparent trade deal between Presidents Trump and Xi includes concessions on tariffs, rare earth metals, soybeans, and fentanyl, though its long-term impact remains uncertain.
• The lack of official economic data, particularly the jobs report, makes market analysis more speculative, highlighting the importance of all upcoming economic indicators.

Market Outlook: Earnings, Data Gaps, and Fed Uncertainty Converge

This week presents a significant convergence of market-moving events for investors, with corporate earnings reports, a compromised economic data landscape, and the Federal Reserve’s evolving interest rate strategy all demanding attention. With just eight weeks remaining in 2025, market participants are on high alert, scrutinizing every development.

Recent strong performance from Amazon, whose earnings report on Thursday led to a 2.5% surge in the Nasdaq and gains for the S&P 500 and Dow, offered a temporary boost. However, this optimism is tempered by a packed earnings calendar ahead.

This week’s focus shifts to financial results from companies such as Palantir, AMD, Supermicro, and Constellation Energy, among dozens of other S&P 500 constituents. The market is preparing for these announcements amidst an incomplete economic picture.

💡 The ongoing government shutdown has led to the omission of the official monthly jobs report, placing greater emphasis on the ADP’s private payrolls data due Wednesday.

Additional economic indicators include updates on manufacturing and services activity from ISM and S&P Global. Consumer sentiment data from the University of Michigan is also slated for release on Friday, providing further insights into economic conditions.

Fed Policy Tightens Amidst Data Uncertainty

Following last week’s anticipated interest rate cut, Federal Reserve Chair Jerome Powell’s subsequent press conference significantly altered market expectations regarding future monetary policy. Powell’s comments suggested that further rate adjustments, particularly a December cut, are far from guaranteed.

“Not a foregone conclusion, far from it,” Powell stated, casting doubt on what had been largely priced in by traders. This cautious tone was noted by analysts, who observed that Powell’s remarks were less dovish than anticipated.

💡 Market sentiment quickly shifted, with the probability of a quarter-point rate cut in December dropping from 95% to approximately 63% by Friday. This underscores the increasing internal debate within the Federal Reserve concerning the optimal path forward for interest rates.

Divergent views are emerging among Fed officials. While some favored a larger rate cut, others, like Kansas City Fed President Jeff Schmid, advocated for no further reductions, a sentiment echoed by three additional regional Fed presidents. This growing divide suggests potential policy gridlock or increased unpredictability.

Analysts predict that Chair Powell may face diminishing control over monetary policy decisions as regional Fed presidents become more vocal about their differing perspectives. This divergence complicates the outlook for future rate adjustments, with some institutions forecasting no further cuts under the current leadership, while others still anticipate a December move. The overall consensus points towards a more chaotic policy environment.

💡 The Federal Reserve is increasingly operating with incomplete economic data, turning policy decisions into a more challenging exercise in guesswork. This data deficit amplifies the importance of every economic report released.

Evaluating the US-China Trade Developments

A meeting between President Donald Trump and Chinese President Xi Jinping in South Korea yielded an announcement of a new trade agreement. President Trump described the meeting as exceptionally productive, detailing the accord’s scope, which reportedly includes rare earth metals, soybeans, fentanyl, and port fees.

Key provisions include a reduction in US tariffs on fentanyl-related products from 57% to 47%. In exchange, China is expected to suspend controls on rare earth exports for at least a year and commit to purchasing 25 million tons of US soybeans annually for three years. This soybean commitment is seen as a significant benefit for American farmers who have faced challenges with previous Chinese orders.

However, market reactions indicate a degree of skepticism regarding the durability and comprehensiveness of this agreement. Some analysts view the deal as a de-escalation that reduces tail risks, while others suggest it largely reverts the trade relationship to its prior state from mid-year.

💡 Notably, discussions reportedly omitted critical issues such as TikTok and Taiwan. Historical precedent, such as the 2020 Phase One deal where China fell short of its purchase commitments, fuels caution about the current agreement’s long-term effectiveness.

The absence of any discussion regarding Nvidia’s advanced AI chips, specifically the Blackwell series, leaves uncertainty about future sales to Chinese customers. This omission highlights that while some tariffs are being addressed, other significant trade and geopolitical matters remain unresolved.

Bank of America advised clients to consider historical market trends, noting that November often favors stocks. However, the current environment, characterized by Powell’s ambiguous policy signals, the absence of crucial jobs data, and the uncertainty surrounding the US-China trade accord, creates a complex backdrop for investors.