Mega-Caps Drive Early Gains Before Fed Comments Temper Rally

The stock market delivered a volatile but ultimately revealing session as early optimism gave way to a more cautious tone following the Federal Reserve’s policy decision.

Major averages opened strong, with the S&P 500 (flat), Nasdaq Composite (+0.6%), and DJIA (-0.2%) all touching record highs in early trade. The gains were largely powered by NVIDIA (NVDA 207.03, +6.00, +2.98%), which once again served as the centerpiece of the market’s AI enthusiasm. However, after the Fed announced a widely expected 25-basis-point rate cut to a range of 3.75%–4.00%, momentum faded.

While the rate move itself was no surprise, Chair Powell’s cautious tone unsettled investors. He stressed that another rate cut in December was “not a foregone conclusion, far from it,” hinting at growing division within the FOMC. Futures markets quickly repriced expectations — the CME FedWatch tool now places just a 66% probability on another cut in December, down from over 90% a day earlier.

The shift in sentiment briefly dragged the S&P 500 and Dow Jones below their baselines, though the Nasdaq recovered to close at yet another record high, powered by strength in technology and communication shares. The information technology sector (+1.1%) led the advance thanks to NVIDIA’s surge and upbeat earnings from Teradyne (+20%), Seagate (+19%), and Western Digital (+13%). The PHLX Semiconductor Index added 1.9%, reinforcing the market’s confidence in chipmakers.

Alphabet (+2.5%) also boosted the communication services sector (+1.1%), while Meta and Microsoft traded quietly ahead of their own earnings. That leadership from mega-caps meant the market-weighted S&P 500 finished flat while the equal-weighted version fell 1.1%, underscoring how much of the market’s resilience still depends on a handful of giants.

Outside the tech sphere, energy (+0.8%) and industrials (+0.3%) found support from stronger oil prices and upbeat results from Caterpillar (+11.7%). Yet, selling was broad elsewhere: real estate (-2.7%), consumer staples (-2.0%), financials (-1.7%), and materials (-1.8%) all posted sharp declines. Losses in Fiserv (-44%) and Smurfit Westrock (-12%) weighed on their respective sectors.

Smaller-cap stocks also struggled, with the Russell 2000 (-0.9%) and S&P Mid Cap 400 (-0.7%) both pulling back from record levels amid Powell’s less-dovish guidance.

In sum, today’s session highlighted two competing narratives: unwavering enthusiasm around AI-driven growth, symbolized by NVIDIA’s relentless ascent, and renewed caution surrounding the Fed’s policy path. The market’s near-record levels remain supported by mega-cap strength, but fading hopes for aggressive monetary easing introduced a note of hesitation that could shape sentiment heading into the final stretch of earnings season.

Our FTinvest 11 model portfolio snapped its recent streak of gains, retreating 1.36% to close at 839.93 after spending most of the session in negative territory. Early in the day, the index attempted to stabilize, but renewed weakness in growth-oriented names and broad profit-taking across several components weighed on performance through the afternoon.

The pullback followed several days of resilience, and while the decline was moderate in the context of recent advances, it marked a clear cooling of momentum heading into the week’s close. Market sentiment was cautious overall, reflecting a mix of fading enthusiasm in high-beta names and some rotation into defensive positions across the broader market.

Despite the day’s loss, FTinvest 11 continues to trade near the upper end of its recent range, maintaining a strong year-to-date gain. However, the pause underscores investors’ more selective appetite after a strong run across key holdings.

For now, the focus shifts to whether the index can regain traction in coming sessions or if consolidation near current levels will extend, particularly as earnings season and broader macro signals continue to shape market tone.