Following the Fed’s Rate Cut, Where Are Global Asset Prices Headed?

The Federal Reserve, as expected, reduced its benchmark rate by 25 basis points, bringing the federal funds target range down to 4.00%–4.25%—its first cut since December 2024. Policymakers signaled two additional cuts this year and only one next year, down from the previously anticipated two or three, and placed greater emphasis on labor market vulnerabilities than on inflation risks. The Federal Open Market Committee also reiterated its plan to continue shrinking its holdings of Treasury securities, agency debt, and mortgage-backed securities.

In coordinated moves, the Hong Kong Monetary Authority and the Monetary Authority of Macao each trimmed their base rates by 25 basis points to 4.5%. The Bank of Canada followed suit, while the Bank of England and the Bank of Japan held policy rates steady. Last week, the European Central Bank maintained its rates and hinted that its easing cycle may have concluded. Despite this, the Federal Reserve’s more muted outlook for next year’s cuts prompted an initial drop and then a sharp rebound in the US dollar. The EUR/USD rate slid from 1.191 to 1.179, and the US Dollar Index rallied from 96.3 to 97.18. Meanwhile, the ten-year Treasury yield briefly dipped to about 4.00% before climbing back toward 4.09%, where it currently trades around 4.05%.

A steeper yield curve—driven by lower short-term rates and stable or slightly higher long-term yields—may signal market concern over a “growth slowdown coupled with rising prices,” a scenario that aligns with the Fed’s present anxieties. Softening labor data and potential tariff pass-through effects could reignite inflation, complicating future rate decisions.

Gold, traditionally benefiting from lower opportunity costs, weakened in dollar terms as the greenback strengthened after the Fed’s announcement. The metal’s repeated record highs had already factored in a September cut, so traders opted to take profits once policy certainty arrived. Over the medium to long term, however, an extended cycle of US easing, continued central bank purchases, geopolitical risks, and ETF demand amid global uncertainties should underpin gold’s appeal.

US equity markets diverged in their reaction: the Dow Jones Industrial Average closed up 0.57%, while the S&P 500 and Nasdaq Composite fell 0.10% and 0.33%, respectively. All three indexes initially declined on the rate decision before recovering some losses. Within the Dow, Goldman Sachs rose 1.11% on prospects for a stronger investment banking environment, and Caterpillar climbed 2.27% on expectations of renewed construction activity. In contrast, megacap tech names underperformed—NVIDIA slipped more than 2.6% amid reports of cooling demand for its China-specific RTX Pro 6000D, and Alibaba (BABA.US) and Baidu (BIDU.US) saw their US-listed shares trail broader tech gains.

Futures for the S&P 500, Nasdaq 100, and the Dow have since rebounded, with the Nasdaq 100 futures up 0.83%, Dow futures up 0.49%, and S&P 500 futures up 0.62%. NVIDIA futures are also trading higher in pre-market.

Chinese concept stocks bucked the broader tech decline, as the NASDAQ Golden Dragon China Index rose 2.85%. Self-developed chip companies extended their recent outperformance, and over the past five trading days, Alibaba’s US shares rallied 15.45%, while Baidu soared 28.09%. Their corresponding H-shares in Hong Kong also benefited. Yet investors should remain cautious: with rate cuts fully priced in, profit-taking often follows, setting the stage for potential pullbacks. Indeed, Baidu’s US shares opened down 1.3% pre-market, and Alibaba’s fell 1.99%, as focus shifts from “expectations” to “realization.”

The key test will be whether fundamentals can supplant liquidity as the principal support for asset prices. Market participants will scrutinize upcoming earnings to see if AI narratives and homegrown chip strategies translate into tangible revenue and margin gains. Without stronger-than-expected results, the current rally may lack a sustainable foundation.

In summary, the Federal Reserve’s anticipated rate cut has ushered in a new market phase characterized by “slower, longer-lasting” accommodation amid the dual challenge of slowing growth and persistent inflation. Global asset performance will likely diverge as markets move from “trading expectations” to “verifying realities.” Going forward, economic data and corporate earnings will drive volatility more than policy speculation, underscoring the importance of rigorous fundamental analysis over momentum chasing.