FedWatch Rate Cut Probability for December Jumps to 70%: Market Impact Analysis

On November 21, 2025 (EST), the CME FedWatch Tool showed a sharp increase in market expectations for a December 2025 Federal Reserve rate cut—from ~39% to ~70%—triggered by comments from NY Fed President John Williams about “room for further adjustment” to monetary policy [1][3]. This shift led to broad market gains: Russell2000 (+2.72%, small caps most sensitive to lower rates), Dow Jones Industrial Average (+0.95%), S&P500 (+0.72%), NASDAQ Composite (+0.50%) [0]. Sector performance reflected rate cut expectations with healthcare (+1.73%), industrials (+1.52%) leading, while utilities (-0.88%) and tech (+0.15%) underperformed [0]. Fixed income markets saw falling yields, and silver volatility increased [1].

1. Small-cap stocks (Russell2000) outperformed significantly, indicating investor belief in lower borrowing costs benefiting smaller firms.
2. Utilities’ unexpected decline suggests rotation away from defensive assets, even as rate cuts are expected.
3. Tech’s muted gain may signal valuation concerns or sector-specific headwinds despite dovish policy signals.
4. Record futures trading volume (255.63k contracts) reflects intense market sentiment shift [1].

• Expectation mismatch
  : If the Fed does not cut rates in December, markets may correct due to the high (~70%) probability priced in [4].
• Fed division
  : Policymakers remain divided on further easing, adding uncertainty [4].
• Data vacuum
  : Ongoing government shutdown delays key economic data (e.g., October jobs report), reducing the Fed’s ability to make data-driven decisions [5].

• Cyclical sectors
  : Healthcare, industrials, and basic materials are well-positioned to benefit from lower rates and economic stimulus [0].
• Small-cap stocks
  : Russell2000’s strong performance highlights potential gains in this segment.

• FedWatch rate cut probability for December jumped from ~39% to ~70% on November21,2025 [1][3].
• Top-performing sectors: Healthcare (+1.73%), Industrials (+1.52%), Basic Materials (+1.39%) [0].
• Worst-performing sector: Utilities (-0.88%) [0].
• Leading index gain: Russell2000 (+2.72%) [0].