Markets Slip Ahead of the Fed as Broader Weakness Outweighs Tech Strength

The stock market opened the week on a softer footing as investors positioned themselves for Wednesday’s pivotal FOMC decision. After a stretch of subdued, directionless trading, the major averages drifted lower: the S&P 500 slipped 0.4%, the Nasdaq Composite edged down 0.1%, and the Dow Jones Industrial Average lost 0.5%—a move that reflected broad-based weakness despite a notable rebound in technology shares.

Tech was the lone bright spot, with the information technology sector climbing 1.0%. Strong performances from its heaviest hitters—including NVIDIA (+1.73%) and Broadcom (+2.78%)—helped lift the PHLX Semiconductor Index by 1.1%. Broadcom drew additional interest from reports suggesting Microsoft is exploring a shift of its custom chip development toward the company. Oracle also added to the sector’s momentum, gaining 1.37% ahead of its earnings report on Wednesday evening.

But beyond tech, the tone was decisively weaker. All ten remaining S&P 500 sectors finished in the red, with communication services (-1.8%) posting the steepest decline. The sector’s megacap anchors—Alphabet (-2.37%) and Meta Platforms (-0.94%)—retreated, while Warner Bros. Discovery surged 4.41% amid an intensifying takeover battle. Paramount Skydance lobbed in an unexpected $30-per-share all-cash bid, escalating its challenge to WBD’s existing agreement with Netflix. Netflix itself fell 3.41% after a downgrade at Rosenblatt, adding pressure to the communication services group.

Consumer discretionary (-1.5%) also lagged, weighed down by a decline in Tesla (-3.39%) after a valuation-based downgrade from Morgan Stanley. Homebuilder weakness sent the iShares U.S. Home Construction ETF down 2.1%, adding further drag to the sector.

Market breadth reflected the cautious tone: decliners outnumbered advancers by nearly 2-to-1 on the NYSE and roughly 5-to-4 on the Nasdaq. Six S&P 500 sectors logged losses of at least 1%, pointing to a broad pullback rather than isolated rotation. Even so, the Vanguard Mega Cap Growth ETF slipped only 0.2%, and the cap-weighted S&P 500 held up marginally better than its equal-weight counterpart, underscoring how a strong tech tape helped cushion index-level declines.

Despite today’s retreat, the major averages remain at or slightly above their month-to-date marks, thanks largely to the technology sector’s 2.3% gain in December.

With the Fed decision looming, investor focus has sharpened around the likelihood of a 25-basis-point rate cut. While expectations for a reduction remain high, sentiment is shifting toward the possibility of a “hawkish cut”—a scenario in which policymakers deliver an initial easing but signal a slower path forward for additional adjustments. Wednesday’s decision and accompanying guidance will set the tone for markets heading into year-end.

For now, traders appear content to stay cautious, allowing tech strength to offset broad weakness while awaiting clearer direction from the Fed.

Our FTinvest 11 model portfolio finished slightly lower today, slipping 0.14% to close at 922.17, as the portfolio saw a modest pause following its recent stretch of strong performance. The index traded in a relatively narrow range throughout the session, reflecting the broader market’s cautious tone ahead of this week’s key macro catalysts.

Unlike earlier sessions where leadership was more defined, today’s trading showed mixed action across the portfolio. Several components attempted to push higher during the morning, but midday softness across the market eventually weighed on FTinvest 11, keeping the index just below recent highs.

Still, the pullback was mild and came after a period of meaningful gains, suggesting consolidation rather than a shift in underlying momentum. With FTInvest 11 continuing to hover near record territory, investors appear to be taking a measured approach as they brace for the upcoming Fed decision—an event that could influence risk sentiment and sector rotation in the days ahead.

FTinvest 11 remains firmly positioned near historical highs, and today’s slight retreat does little to alter the positive broader trend.