Fed Daly's December Rate Cut Support: Market Reaction & Rate Cut Probability Analysis

On November 24, 2025, San Francisco Fed President Mary Daly (non-voting FOMC member) expressed support for a December interest rate cut, citing concerns about labor market vulnerability to “nonlinear changes.” This comment triggered a rally in U.S. stock indices (NASDAQ +1.73%, S&P500 +1.03%) and a sharp increase in market-implied probability of a December Fed rate cut (from ~30% to ~81-85% in one week). Sector performance was mixed, with Healthcare leading gains and Real Estate underperforming.

a)

: Daly shifted her stance to back a December rate cut due to labor market risks, noting: “It’s vulnerable enough now that the risk is it’ll have a nonlinear change.” [1][2]
b) : Market-implied odds of a 25-basis-point December cut rose to ~81-85% as of Nov24-25, up from ~30% a week earlier. [3][4][5]
c) : NASDAQ (+1.73%) outperformed S&P500 (+1.03%) on Nov24, reflecting growth stock sensitivity to rate cut expectations. [0]
d) : Healthcare (+1.45%) and Industrials (+1.24%) were top performers, while Real Estate (-1.49%) was the worst-performing sector. [0]

• Fed Communication Impact
  : Daly’s comments (from a non-voting but influential member) signaled a shift in Fed officials’ stance toward accommodative policy. The focus on “nonlinear” labor market risks highlighted concerns that the Fed could fall behind if it delays action. [1][2]
• Market Repricing
  : The rapid jump in rate cut odds (30% → ~85%) reflects the market’s sensitivity to Fed signals. This repricing boosted growth assets like tech stocks (NASDAQ outperformance) because lower rates reduce the discount rate for future cash flows, increasing their valuation. [3][5]
• Sector Dynamics
  : Healthcare (defensive) and Industrials (cyclical) led gains, indicating a mix of defensive positioning (amid labor market worries) and cyclical optimism (from rate cuts). Real Estate’s underperformance—despite rate cut expectations—may reflect lingering housing demand concerns or sector-specific headwinds. [0]

• Sentiment Reversal
  : The rate cut news reversed November’s negative trend (S&P500 was down ~1.5% mid-month) and restored risk appetite. [1]
• Asset Class Winners
  : Growth stocks (tech) benefited most, aligning with historical trends where rate cuts support long-duration assets. [0][3]
• Investor Strategy
  : Investors may shift to growth/cyclical stocks if cut expectations persist, while defensive sectors like Healthcare could remain supported amid labor market uncertainties. [0]
• Policy Uncertainty
  : While Daly’s comments increased cut odds, the Fed’s final decision remains uncertain as other officials (including voting members) have not yet aligned with this stance. [4]

• Context
  : Daly is a non-voting FOMC member in 2025 but is a leading voice on labor market issues. [2]
• Timeline
  : Rate cut expectations swung from near-certainty (mid-October) → ~30% (last week) → ~85% (Nov24) due to Fed communication shifts. [4][5]
• Market Background
  : November 2025 was on track to be the worst November for stocks since 2008 before the Nov24 rally. [1]

a)

: No data on how AI-specific stocks (e.g., Magnificent Seven) performed on Nov24, relevant to the event’s mention of AI investments.
b) : Lack of Treasury yield or bond market data to assess interest rate sensitivity.
c) : No information on whether voting FOMC members align with Daly’s December cut view.
d) : Missing real-time CME FedWatch Tool data for Nov24 (only article citations of ~81-85% probability).

[0] Internal Data Sources (get_market_indices, get_sector_performance tools)
[1] Morningstar. (2025). The Fed’s December rate-cut decision is even more crucial now. Retrieved from https://www.morningstar.com/news/marketwatch/20251125114/the-feds-december-rate-cut-decision-is-even-more-crucial-now-that-stocks-are-having-their-worst-november-since-2008
[2] UpNorthLive. (2025). Wall Street boosts bets on another rate cut next month. Retrieved from https://upnorthlive.com/news/nation-world/wall-street-boosts-bets-on-another-rate-cut-next-month-federal-reserve-jerome-powell-economy-labor-market-hiring-inflation
[3] Economic Times. (2025). Dow Jones, Nasdaq, S&P futures steady after Tuesday market surge. Retrieved from https://m.economictimes.com/news/international/us/dow-jones-nasdaq-sp-futures-steady-after-tuesday-market-surge-as-traders-weigh-fed-cut-bets-and-alphabets-rally-signal-on-ai-demand/articleshow/125577908.cms
[4] Chronicle Journal. (2025). Federal Reserve Grapples with Deep Divisions Ahead of Pivotal December Rate Decision. Retrieved from http://markets.chroniclejournal.com/chroniclejournal/article/marketminute-2025-11-25-federal-reserve-grapples-with-deep-divisions-ahead-of-pivotal-december-rate-decision
[5] The Wealth Advisor. (2025). Suddenly, the Fed Interest Rate Cut In December Looks Like It Is Very Much Back On The Table. Retrieved from https://www.thewealthadvisor.com/article/suddenly-fed-interest-rate-cut-december-looks-it-very-much-back-table