Weekly Market Recap: Markets Test New Highs as Fed Signals Patience Into 2026

Market Overview

Markets delivered a choppy finish to the week, underscoring a “tale of two halves” as investors navigated the final Federal Reserve meeting of the year. U.S. equities traded quietly early on before volatility picked up midweek, ultimately leaving major indexes mixed. The S&P 500 (-0.6%) and Nasdaq (-1.6%) slipped modestly, while the Dow (1.1%) and small-cap Russell 2000 (1.2%) managed gains. Internationally, European markets finished flat and Asia-Pacific stocks were mixed, with Japan outperforming ahead of a highly anticipated Bank of Japan decision.

Sector leadership rotated toward cyclicals midweek before big tech weighed on Friday’s close, reflecting investor sensitivity to earnings expectations and policy commentary. Treasury yields continued to grind higher, pressuring bond prices, while commodities and the U.S. dollar weakened over the week.

Federal Reserve Insights and Economic Roundup

The Federal Reserve delivered its third consecutive 25-basis-point rate cut, lowering the target range to 3.50%–3.75%, in a move that was widely expected. Markets initially reacted positively as Chair Powell struck a less hawkish tone than feared, emphasizing improving inflation trends and economic resilience. Updated projections painted a potential “Goldilocks” scenario, with higher growth, easing inflation, and stable labor conditions.

That said, policymakers signaled a more cautious path forward, with expectations centered on fewer rate cuts in 2026 unless inflation continues to cool meaningfully. Importantly, the Fed also announced temporary Treasury bill purchases aimed at stabilizing short-term funding markets. While not a return to traditional quantitative easing, the move reinforced the Fed’s willingness to act proactively to prevent liquidity stress—an underlying positive for financial markets.

On the economic front, consumer commentary from large retailers and banks hinted at pockets of fragility, while housing and labor data remained key swing factors. Overall, the Fed appears comfortable staying patient into early 2026, allowing economic tailwinds from productivity and fiscal support to play out.

The Week Ahead

Monday: Empire State Manufacturing Index (Dec) and NAHB Housing Market Index (Dec) provide early insight into regional manufacturing and homebuilder sentiment.

Tuesday: November labor market data, including payrolls, unemployment, and wage growth, alongside October retail sales and preliminary December PMI readings.

Wednesday: MBA Mortgage Applications offer an updated view on housing demand as rates remain elevated.

Thursday: Key inflation data with headline and core CPI, weekly jobless claims, and multiple regional Fed manufacturing surveys.

Friday: Existing home sales and the final December University of Michigan Consumer Sentiment survey close out the week.