FOMC decision imminent, with increasing divergence between bulls and bears causing the Nasdaq's rally to stall. What choices do investors face?

The Night Before the Rate Decision, Markets Are Full of Uncertainty

This Thursday (December 11), the final FOMC meeting of 2025 is about to take place. Although Powell has stated that a rate cut in December is not certain, market pricing reflects an 87.2% probability of a cut, with expectations of two rate cuts in 2026.

However, a key variable is disrupting the Federal Reserve’s decision-making process. The U.S. government has been shut down for 43 days since October 1, leading to missing critical economic data. This means that October non-farm payroll data will be delayed and included in the November report released on December 16, while October CPI has not been published at all, and November CPI will not be available until December 18. The absence of these two data points has directly amplified internal divisions within the Fed, making decision-making more difficult.

Economic Fundamentals Show Signs of Hope, but Policy Pathways Remain Uncertain

Based on the released economic data, the U.S. unemployment rate in September rose to 4.4%, and the PCE inflation rate increased by 2.8% year-over-year, both in line with market expectations. The easing of U.S.-China trade tensions suggests that inflationary pressures may be a “one-time shock,” laying the groundwork for the Fed to further loosen policy.

But what investors are truly focused on is the Fed’s subsequent monetary policy path. Considering that monetary policy effects have about a six-month lag, and Powell is set to step down in May next year, the market speculates that after a 25 basis point rate cut in December, the first half of next year may see no change. If Powell signals limited room for further cuts after the meeting, the “drop the mic” effect could trigger a sell-off in risk assets.

JPMorgan strategist Mislav Matejka and his team recently pointed out that even if the Fed cuts rates as expected, recent gains in U.S. stocks may stall due to investors taking profits early. The team believes that as the year-end approaches, investors are more inclined to lock in gains rather than increase positions, and market expectations for rate cuts have been fully priced in, with stock valuations already high again.

Positive Factors Still Present, but Short-Term Pressures Mount

JPMorgan’s medium-term outlook remains optimistic, believing that the Fed’s dovish stance can support the stock market. Falling oil prices, slowing wage growth, and easing tariffs allow the Fed to continue easing without stoking inflation. Factors that could boost the stock market next year also include declining trade uncertainties, improving Chinese economic prospects, increased fiscal spending in the Eurozone, and the widespread adoption of artificial intelligence in the U.S.

However, more urgent threats come from the bond market. Major government bond yields have recently risen across the board, with the U.S. 10-year yield climbing as high as 4.196%, up 5.6 basis points, and the 2-year yield rising 4.4 basis points to 3.608%. This reflects deepening investor concerns about U.S. creditworthiness, policy stability, asset volatility, and government debt repayment capacity, with risk premiums rising significantly. On December 8, the VIX fear index surged 8.25%, and the MOVE index increased 7.46%, both hitting upward momentum, further indicating deteriorating market sentiment.

Elevated bond yields are bound to suppress tech stocks. This is the fundamental reason for the stagnation of the Nasdaq’s rally—bull and bear forces are temporarily balanced, and market disagreement is intensifying.

Technical Warning, Short-Term Downside Risks Emerge

From a technical perspective, the Nasdaq 100 index faces a key resistance at 26,000 points. If it cannot break through this level effectively, there is a risk of forming a double top, followed by a retest of the 24,000 support level. Investors should focus on 25,200 points as the dividing line between bulls and bears, remaining alert to the possibility of renewed short-term selling pressure.

Although the overall upward trend is unlikely to reverse in the short term, the market has entered a highly sensitive state, and any deviation in policy signals could trigger adjustments. For investors, the most prudent approach now is to wait for the Fed’s decision to be announced and closely monitor bond yields.