Market Volatility Peaks as Investors Gird for Final Fed Meeting of 2025

The U.S. stock market experienced a notable pullback on Monday, December 8, as the holiday season’s optimistic rally met the sobering reality of the Federal Reserve’s final policy meeting of the year. The S&P 500 slipped 0.5%, retreating from all-time highs as traders adopted a “wait-and-see” approach ahead of the Wednesday interest rate decision. The Dow Jones Industrial Average dropped approximately 272 points, or 0.6%, while the Nasdaq Composite followed suit with a 0.4% decline. This cautious sentiment marks a pivot from the previous two weeks of consistent gains, which had been buoyed by cooling inflation data and resilient consumer spending.

Treasury Yields and the Inflation Conundrum

A significant factor weighing on market sentiment is the persistent climb of the benchmark 10-year Treasury yield, which rose to 4.18% despite the widespread expectation of an imminent rate cut. This “yield rally” reflects deep-seated investor anxiety regarding the inflation outlook for early 2026. While the Fed is heavily expected to issue a 25-basis-point cut—futures are pricing in a roughly 90% probability—there are growing concerns that higher debt levels and global trade dynamics could make further easing difficult for the central bank. Experts suggest that a failure to cut rates this week could trigger a 2% to 3% market correction, as the move has already been largely “priced in.”

Tech Mergers and Chip Innovations Offer a Bright Spot

Despite the broader indices slipping, the technology sector remained a bastion of strength, driven by massive merger and acquisition activity. Shares of Confluent skyrocketed nearly 29% on news of an $11 billion acquisition by IBM, a deal aimed at bolstering IBM’s real-time data streaming and cloud capabilities. Meanwhile, Broadcom hit a new record high, rising 2.5% following reports that Microsoft is exploring a partnership to design custom chips. These localized gains provided some insulation for the Nasdaq, even as software giants like Oracle saw more modest increases ahead of their upcoming quarterly earnings.

“Data-Dependent” Future

Looking beyond the immediate rate decision, market participants are bracing for the guidance of Fed Chair Jerome Powell. With his term set to expire in mid-2026, analysts expect Powell to adopt a rigorously data-dependent stance, likely acknowledging the recent labor market softness highlighted by the weak November ADP employment report.

The true challenge for investors may not lie in the December meeting itself, but in whether rate cuts will be pushed further into next year if inflation remains stubborn. As the S&P 500 continues to hover near historic levels, the upcoming policy statement will serve as the primary barometer for the market’s trajectory in the first half of 2026.