Fed Rate Cut Expectations & Market Reaction Analysis (Nov 24, 2025)

This report analyzes the market impact of San Francisco Fed President Mary Daly’s Nov 24, 2025 comments supporting a December rate cut, as discussed in a Reddit thread. Key findings include a sharp rise in market pricing for a December cut (to ~81-84%), positive US index performance (led by NASDAQ), and sector rotation favoring energy over tech—contrasting with Reddit user arguments about AI investment benefits from rate cuts.

a.

: San Francisco Fed President Mary Daly (a Powell ally) supported a December rate cut, citing higher risk of sudden labor market deterioration vs. inflation flare-ups [1] and [2].
b. : Post-Daly’s comments, the CME FedWatch Tool priced an 81-84% chance of a 25bp December cut—up from ~50% a week earlier [4], [5], and [2].
c. : On Nov24, NASDAQ (+1.73%) outperformed S&P500 (+1.03%) and Dow (+0.17%) [0].
d. : Energy (+1.77%) led gains, while Healthcare (-0.12%) and Consumer Cyclical (-0.07%) declined; Tech sector rose only 0.15% [0].

Daly’s comments (from a non-voting 2027 FOMC member) were influential because of her alignment with Fed Chair Powell [1] and [2]. There is a potential7-5 FOMC split in favor of a cut, suggesting Powell may be coalescing support for easing.

While Reddit users argued rate cuts would boost AI investments, the Tech sector (0.15% gain) lagged behind Energy (1.77%) [0]. This disconnect likely stems from:

• Labor Market Concerns
  : Daly’s rate cut rationale (fragile labor markets) signals economic weakness, which could weigh on tech earnings [2].
• Commodity Sensitivity
  : Energy’s outperformance reflects expectations of lower rates weakening the dollar and boosting commodity prices [0].

FedWatch probabilities fluctuated sharply: from90% (Oct1) to50% (Nov14) before rebounding to ~84% (Nov24). This volatility underscores market sensitivity to Fed communication [6] and [4].

• Indices
  : NASDAQ’s strong gain (+1.73%) reflects rate-sensitive growth stocks benefiting from easing expectations, while the Dow’s muted rise (+0.17%) indicates caution about economic fundamentals [0].
• Sector Flows
  : Energy’s leadership suggests investors are rotating to defensive, commodity-linked sectors amid economic uncertainty [0].

Increased long positions in Fed futures were noted, with net longs at their highest since October2010—indicating bullish sentiment on rate cuts [3].

Contrary to Reddit arguments, Tech’s underperformance suggests markets are not yet pricing in AI-specific benefits from rate cuts. This may be due to:

• Uncertainty about AI profitability amid economic slowdown [0].
• Focus on short-term economic risks over long-term AI growth [1] and [2].

• FOMC Meeting
  : Dec9-10,2025—critical for confirming rate cut decisions [6].
• Economic Backdrop
  : Four consecutive months of declining retail sales and falling10-year yields below4% support Daly’s labor market concerns.
• Daly’s Influence
  : Though non-voting in 2025, her alignment with Powell makes her comments a leading indicator of Fed policy direction [2].

a.

: Potential7-5 split in favor of a cut lacks official confirmation.
b. : No data on AI sub-sector performance (e.g., semiconductor stocks) to validate Reddit’s AI investment arguments.
c. : Lack of analysis on how rate cuts would affect AI investment flows over 6-12 months.
d. : No detailed recent labor market stats (e.g., jobless claims, wage growth) to quantify the “fragility” Daly referenced.