Equities actually held up remarkably well yesterday. The S&P 500 finished basically flat after being down almost 2% intraday. That resilience surprises some people, but I see it differently.
Lower short-term rates are still supportive even if the terminal rate ends higher than expected. Corporate America locked in cheap debt years ago. As long as recession odds stay low – and right now they do – stocks can grind higher.
The bigger risk would be sticky inflation reaccelerating in Q2 2026 and forcing the Fed to reverse course. For now that scenario sits low probability.
Looking Ahead: Data Will Drive Everything
Powell repeated multiple times that policy remains “data dependent.” Translation: show us sustained progress on inflation and labor market cooling, and we’ll keep cutting. Show us the opposite, and we stop.
- January payrolls report (early February)
- Q4 GDP second read
- Core PCE for November and December
- Any signs of wage pressure picking back up
Those four data points will probably decide whether markets get their second cut in March or have to wait until June or later.
My base case? We get one more cut in Q1 2026, then the Fed pauses for the rest of the year unless something breaks. That keeps the 10-year yield range-bound between 3.80% and 4.50% through mid-year.
But markets hate uncertainty, and right now uncertainty is the only thing that’s guaranteed.
Stay nimble, keep some dry powder, and remember: when the Fed starts surprising with caution instead of aggression, it usually pays to listen.
Because sometimes the most dangerous words in investing aren’t “this time it’s different” – they’re “the Fed’s got our back forever.”
Stock Market Implications – Don’t Fight the Fed… Yet
Equities actually held up remarkably well yesterday. The S&P 500 finished basically flat after being down almost 2% intraday. That resilience surprises some people, but I see it differently.
Lower short-term rates are still supportive even if the terminal rate ends higher than expected. Corporate America locked in cheap debt years ago. As long as recession odds stay low – and right now they do – stocks can grind higher.
The bigger risk would be sticky inflation reaccelerating in Q2 2026 and forcing the Fed to reverse course. For now that scenario sits low probability.
Looking Ahead: Data Will Drive Everything
Powell repeated multiple times that policy remains “data dependent.” Translation: show us sustained progress on inflation and labor market cooling, and we’ll keep cutting. Show us the opposite, and we stop.
- January payrolls report (early February)
- Q4 GDP second read
- Core PCE for November and December
- Any signs of wage pressure picking back up
Those four data points will probably decide whether markets get their second cut in March or have to wait until June or later.
My base case? We get one more cut in Q1 2026, then the Fed pauses for the rest of the year unless something breaks. That keeps the 10-year yield range-bound between 3.80% and 4.50% through mid-year.
But markets hate uncertainty, and right now uncertainty is the only thing that’s guaranteed.
Stay nimble, keep some dry powder, and remember: when the Fed starts surprising with caution instead of aggression, it usually pays to listen.
Because sometimes the most dangerous words in investing aren’t “this time it’s different” – they’re “the Fed’s got our back forever.”
Look at the current shape and you’ll see something curious. The 2-year/10-year spread is still inverted, but barely. Meanwhile the 10-year itself refuses to break sustainably below 4%.
Here’s a quick snapshot from Thursday morning:
| Maturity | YieldChange | |
| 2-Year | 3.53% | -3 bps |
| 10-Year | 4.14% | -2 bps |
| 30-Year | 4.79% | flat |
That little dip tells me fixed-income investors are repositioning for a world where the Fed might actually pause longer than anyone thought even a week ago.
What This Means for Bond Investors Right Now
If you own longer-dated Treasuries bought when yields were 4.8%+ earlier this summer, congratulations – you’re sitting on nice capital gains. But the rally party might be maturing.
Personally, I think the sweet spot today sits in the 5- to 10-year part of the curve. You still pick up decent yield, duration risk feels manageable, and if growth surprises to the upside next year you’re not getting crushed like you would be out at 30 years.
Intermediate municipal bonds look particularly interesting too – tax-equivalent yields north of 5% in many cases, with state-specific issues offering even more.
Stock Market Implications – Don’t Fight the Fed… Yet
Equities actually held up remarkably well yesterday. The S&P 500 finished basically flat after being down almost 2% intraday. That resilience surprises some people, but I see it differently.
Lower short-term rates are still supportive even if the terminal rate ends higher than expected. Corporate America locked in cheap debt years ago. As long as recession odds stay low – and right now they do – stocks can grind higher.
The bigger risk would be sticky inflation reaccelerating in Q2 2026 and forcing the Fed to reverse course. For now that scenario sits low probability.
Looking Ahead: Data Will Drive Everything
Powell repeated multiple times that policy remains “data dependent.” Translation: show us sustained progress on inflation and labor market cooling, and we’ll keep cutting. Show us the opposite, and we stop.
- January payrolls report (early February)
- Q4 GDP second read
- Core PCE for November and December
- Any signs of wage pressure picking back up
Those four data points will probably decide whether markets get their second cut in March or have to wait until June or later.
My base case? We get one more cut in Q1 2026, then the Fed pauses for the rest of the year unless something breaks. That keeps the 10-year yield range-bound between 3.80% and 4.50% through mid-year.
But markets hate uncertainty, and right now uncertainty is the only thing that’s guaranteed.
Stay nimble, keep some dry powder, and remember: when the Fed starts surprising with caution instead of aggression, it usually pays to listen.
Because sometimes the most dangerous words in investing aren’t “this time it’s different” – they’re “the Fed’s got our back forever.”
Why Three Dissents Actually Matter
Most of the time FOMC meetings end with unanimous or near-unanimous votes. Three dissenters is the loudest internal disagreement since 2019.
- Two members wanted to pause completely
- One member wanted a bigger 50 bps cut
- The majority landed in the middle with 25 bps
The fascinating part? The hawks won the narrative control. Markets are now talking about “hawkish cut” instead of “dovish surprise.” That alone shifted rate-cut odds for 2026 dramatically overnight.
The Treasury Yield Curve Is Sending Mixed Signals
Look at the current shape and you’ll see something curious. The 2-year/10-year spread is still inverted, but barely. Meanwhile the 10-year itself refuses to break sustainably below 4%.
Here’s a quick snapshot from Thursday morning:
| Maturity | YieldChange | |
| 2-Year | 3.53% | -3 bps |
| 10-Year | 4.14% | -2 bps |
| 30-Year | 4.79% | flat |
That little dip tells me fixed-income investors are repositioning for a world where the Fed might actually pause longer than anyone thought even a week ago.
What This Means for Bond Investors Right Now
If you own longer-dated Treasuries bought when yields were 4.8%+ earlier this summer, congratulations – you’re sitting on nice capital gains. But the rally party might be maturing.
Personally, I think the sweet spot today sits in the 5- to 10-year part of the curve. You still pick up decent yield, duration risk feels manageable, and if growth surprises to the upside next year you’re not getting crushed like you would be out at 30 years.
Intermediate municipal bonds look particularly interesting too – tax-equivalent yields north of 5% in many cases, with state-specific issues offering even more.
Stock Market Implications – Don’t Fight the Fed… Yet
Equities actually held up remarkably well yesterday. The S&P 500 finished basically flat after being down almost 2% intraday. That resilience surprises some people, but I see it differently.
Lower short-term rates are still supportive even if the terminal rate ends higher than expected. Corporate America locked in cheap debt years ago. As long as recession odds stay low – and right now they do – stocks can grind higher.
The bigger risk would be sticky inflation reaccelerating in Q2 2026 and forcing the Fed to reverse course. For now that scenario sits low probability.
Looking Ahead: Data Will Drive Everything
Powell repeated multiple times that policy remains “data dependent.” Translation: show us sustained progress on inflation and labor market cooling, and we’ll keep cutting. Show us the opposite, and we stop.
- January payrolls report (early February)
- Q4 GDP second read
- Core PCE for November and December
- Any signs of wage pressure picking back up
Those four data points will probably decide whether markets get their second cut in March or have to wait until June or later.
My base case? We get one more cut in Q1 2026, then the Fed pauses for the rest of the year unless something breaks. That keeps the 10-year yield range-bound between 3.80% and 4.50% through mid-year.
But markets hate uncertainty, and right now uncertainty is the only thing that’s guaranteed.
Stay nimble, keep some dry powder, and remember: when the Fed starts surprising with caution instead of aggression, it usually pays to listen.
Because sometimes the most dangerous words in investing aren’t “this time it’s different” – they’re “the Fed’s got our back forever.”
The famous “dot plot” – that chart where every trader screenshots the moment it drops – now shows the median Fed member expecting the fed funds rate to end 2026 somewhere around 3.25%-3.5%. That implies just one additional 25 bps cut next year. One.
Compare that to September when the same plot penciled in two cuts for 2026 and markets were pricing four or five. The gap between Fed guidance and market expectations has rarely been this wide.
In my experience covering these cycles, when the Fed draws a line in the sand this firmly, markets eventually move toward the Fed rather than the other way around – unless the economy falls off a cliff.
Why Three Dissents Actually Matter
Most of the time FOMC meetings end with unanimous or near-unanimous votes. Three dissenters is the loudest internal disagreement since 2019.
- Two members wanted to pause completely
- One member wanted a bigger 50 bps cut
- The majority landed in the middle with 25 bps
The fascinating part? The hawks won the narrative control. Markets are now talking about “hawkish cut” instead of “dovish surprise.” That alone shifted rate-cut odds for 2026 dramatically overnight.
The Treasury Yield Curve Is Sending Mixed Signals
Look at the current shape and you’ll see something curious. The 2-year/10-year spread is still inverted, but barely. Meanwhile the 10-year itself refuses to break sustainably below 4%.
Here’s a quick snapshot from Thursday morning:
| Maturity | YieldChange | |
| 2-Year | 3.53% | -3 bps |
| 10-Year | 4.14% | -2 bps |
| 30-Year | 4.79% | flat |
That little dip tells me fixed-income investors are repositioning for a world where the Fed might actually pause longer than anyone thought even a week ago.
What This Means for Bond Investors Right Now
If you own longer-dated Treasuries bought when yields were 4.8%+ earlier this summer, congratulations – you’re sitting on nice capital gains. But the rally party might be maturing.
Personally, I think the sweet spot today sits in the 5- to 10-year part of the curve. You still pick up decent yield, duration risk feels manageable, and if growth surprises to the upside next year you’re not getting crushed like you would be out at 30 years.
Intermediate municipal bonds look particularly interesting too – tax-equivalent yields north of 5% in many cases, with state-specific issues offering even more.
Stock Market Implications – Don’t Fight the Fed… Yet
Equities actually held up remarkably well yesterday. The S&P 500 finished basically flat after being down almost 2% intraday. That resilience surprises some people, but I see it differently.
Lower short-term rates are still supportive even if the terminal rate ends higher than expected. Corporate America locked in cheap debt years ago. As long as recession odds stay low – and right now they do – stocks can grind higher.
The bigger risk would be sticky inflation reaccelerating in Q2 2026 and forcing the Fed to reverse course. For now that scenario sits low probability.
Looking Ahead: Data Will Drive Everything
Powell repeated multiple times that policy remains “data dependent.” Translation: show us sustained progress on inflation and labor market cooling, and we’ll keep cutting. Show us the opposite, and we stop.
- January payrolls report (early February)
- Q4 GDP second read
- Core PCE for November and December
- Any signs of wage pressure picking back up
Those four data points will probably decide whether markets get their second cut in March or have to wait until June or later.
My base case? We get one more cut in Q1 2026, then the Fed pauses for the rest of the year unless something breaks. That keeps the 10-year yield range-bound between 3.80% and 4.50% through mid-year.
But markets hate uncertainty, and right now uncertainty is the only thing that’s guaranteed.
Stay nimble, keep some dry powder, and remember: when the Fed starts surprising with caution instead of aggression, it usually pays to listen.
Because sometimes the most dangerous words in investing aren’t “this time it’s different” – they’re “the Fed’s got our back forever.”
Have you ever watched a movie where the hero thinks he’s won the final battle, throws a party, and then the villain suddenly stands back up? That’s exactly how yesterday’s Fed meeting felt for a lot of bond traders.
The Federal Reserve did cut rates by 25 basis points as pretty much everyone expected. Champagne corks popped for about five minutes. Then Fed Chair Powell started speaking, three policymakers publicly dissented, and the new dot plot showed only one cut penciled in for all of 2026. Suddenly the mood shifted from celebration to… “wait, that’s it?”
This morning U.S. Treasury yields are quietly backing away from recent highs, almost like they’re embarrassed about getting too excited yesterday. The 10-year is down to around 4.14%, the 2-year closer to 3.53%. Small moves on the surface, but they tell a bigger story.
A Rate Cut That Felt More Hawkish Than September
Let me take you back a second. When the Fed kicked off this cutting cycle in September with a jumbo 50 basis-point move, markets threw a party. Stocks ripped higher, bonds rallied hard, everyone assumed we were on the express train back toward 2% rates.
Fast-forward to December 2025 and the vibe is completely different. This 25 bps cut came with the most pushback we’ve seen in six years – three “no” votes. Two of the dissenters actually wanted to hold rates steady. Think about that for a second. The Fed is still cutting… but a chunk of the committee is already hitting the brakes.
“This rate cut looks a bit more hawkish than the rate cut in September.”
Chief Economist at a major investment firm
He’s not wrong. The Fed basically told markets: “We’re still easing, but don’t get carried away.”
What the New Dot Plot Is Really Saying
The famous “dot plot” – that chart where every trader screenshots the moment it drops – now shows the median Fed member expecting the fed funds rate to end 2026 somewhere around 3.25%-3.5%. That implies just one additional 25 bps cut next year. One.
Compare that to September when the same plot penciled in two cuts for 2026 and markets were pricing four or five. The gap between Fed guidance and market expectations has rarely been this wide.
In my experience covering these cycles, when the Fed draws a line in the sand this firmly, markets eventually move toward the Fed rather than the other way around – unless the economy falls off a cliff.
Why Three Dissents Actually Matter
Most of the time FOMC meetings end with unanimous or near-unanimous votes. Three dissenters is the loudest internal disagreement since 2019.
- Two members wanted to pause completely
- One member wanted a bigger 50 bps cut
- The majority landed in the middle with 25 bps
The fascinating part? The hawks won the narrative control. Markets are now talking about “hawkish cut” instead of “dovish surprise.” That alone shifted rate-cut odds for 2026 dramatically overnight.
The Treasury Yield Curve Is Sending Mixed Signals
Look at the current shape and you’ll see something curious. The 2-year/10-year spread is still inverted, but barely. Meanwhile the 10-year itself refuses to break sustainably below 4%.
Here’s a quick snapshot from Thursday morning:
| Maturity | YieldChange | |
| 2-Year | 3.53% | -3 bps |
| 10-Year | 4.14% | -2 bps |
| 30-Year | 4.79% | flat |
That little dip tells me fixed-income investors are repositioning for a world where the Fed might actually pause longer than anyone thought even a week ago.
What This Means for Bond Investors Right Now
If you own longer-dated Treasuries bought when yields were 4.8%+ earlier this summer, congratulations – you’re sitting on nice capital gains. But the rally party might be maturing.
Personally, I think the sweet spot today sits in the 5- to 10-year part of the curve. You still pick up decent yield, duration risk feels manageable, and if growth surprises to the upside next year you’re not getting crushed like you would be out at 30 years.
Intermediate municipal bonds look particularly interesting too – tax-equivalent yields north of 5% in many cases, with state-specific issues offering even more.
Stock Market Implications – Don’t Fight the Fed… Yet
Equities actually held up remarkably well yesterday. The S&P 500 finished basically flat after being down almost 2% intraday. That resilience surprises some people, but I see it differently.
Lower short-term rates are still supportive even if the terminal rate ends higher than expected. Corporate America locked in cheap debt years ago. As long as recession odds stay low – and right now they do – stocks can grind higher.
The bigger risk would be sticky inflation reaccelerating in Q2 2026 and forcing the Fed to reverse course. For now that scenario sits low probability.
Looking Ahead: Data Will Drive Everything
Powell repeated multiple times that policy remains “data dependent.” Translation: show us sustained progress on inflation and labor market cooling, and we’ll keep cutting. Show us the opposite, and we stop.
- January payrolls report (early February)
- Q4 GDP second read
- Core PCE for November and December
- Any signs of wage pressure picking back up
Those four data points will probably decide whether markets get their second cut in March or have to wait until June or later.
My base case? We get one more cut in Q1 2026, then the Fed pauses for the rest of the year unless something breaks. That keeps the 10-year yield range-bound between 3.80% and 4.50% through mid-year.
But markets hate uncertainty, and right now uncertainty is the only thing that’s guaranteed.
Stay nimble, keep some dry powder, and remember: when the Fed starts surprising with caution instead of aggression, it usually pays to listen.
Because sometimes the most dangerous words in investing aren’t “this time it’s different” – they’re “the Fed’s got our back forever.”
