Fed Daly's December Rate Cut Support: Market Reactions and AI Bubble Implications

On November 24, 2025, San Francisco Fed President Mary Daly expressed support for a December rate cut, citing fragile labor markets and easing inflation concerns [0]. This shifted market expectations, with the probability of a rate cut rising to 81% [0]. U.S. indices responded positively: S&P500 +1.03%, Nasdaq +1.73% [0]. However, sector performance showed nuances—Energy (+1.16%) outperformed Technology (+0.56%) [0], indicating other drivers beyond rate cut hopes.

• Rate cut expectations are now dominant (81% probability), but sector reactions were mixed, suggesting investors balance rate sensitivity with other factors.
• AI bubble debate intensified: Michael Burry compared Nvidia to Cisco (dot-com era), warning of overinvestment in AI infrastructure without proven demand [1].
• Fed Daly’s comments highlight FOMC divisions, with potential for continued risk appetite or panic sell-offs if labor market concerns escalate [2].

• Risks
  : AI bubble burst risk (Burry’s warning), reversal of rate cut expectations, labor market fragility leading to broader sell-offs.
• Opportunities
  : Panic sell-offs from rate cut volatility could present buying opportunities for long-term investors [2].

• Fed Daly’s December rate cut support is a key market catalyst.
• Rate cut probability: 81% as of event date.
• Sector performance: Energy led, Tech underperformed relative to cyclicals.
• AI bubble concerns persist, adding downside risks for Nvidia and related stocks.