WALL STREET FACES PRESSURE FROM AI AND BONDS AS THE FED SIGNALS A PAUSE IN RATE CUTS

Markets are moving forward amid conflicting signals. Uncertainty is once again taking hold after the Federal Reserve’s latest decision.

After three consecutive interest rate cuts, the Federal Reserve has abruptly shifted markets into a new phase: an unexpected pause that forces investors to confront tensions the easing cycle had temporarily kept at bay.
With inflation still “somewhat elevated,” a labor market showing mixed signals, and an imminent change in the central bank’s leadership, the dominant question on Wall Street is no longer when the Fed will cut again, but what it means to operate without the tailwind that boosted equities for much of the year.

Wednesday’s decision a 25-basis-point cut that put the federal funds rate in the 3.50% to 3.75% range— came with a message that unsettled many traders: the institution may not lower borrowing costs further anytime soon. New projections show only one additional cut in 2026 and another in 2027, a stark contrast with market expectations for two cuts next year. The 43-day government shutdown has delayed key data, leaving policymakers with limited visibility into the economy’s true trajectory.

That uncertainty is already seeping into markets. While the Dow Jones rose 1% on Thursday, helped by its lower exposure to tech stocks, the S&P 500 slipped 0.3% and the Nasdaq fell 1%. The mixed performance reflected renewed unease: tech valuations tied to artificial intelligence are beginning to show cracks.

The loudest episode came from Oracle. The company lost between 12% and 13% after reporting lower-than-expected revenue and announcing a significant increase in AI-infrastructure spending. Its shares have dropped more than 40% since September, fueling doubts about whether the race to fund data centers and advanced systems will generate the returns investors anticipate. Nvidia so far the emblem of the AI boom fell more than 3%, dragging down the S&P 500 and reigniting concerns about potential overinvestment that some analysts describe as an early precursor to a bubble.

The tension is not limited to tech. The bond market sent an uncomfortable signal this week: the 10-year Treasury yield hit its highest level in three months before pulling back, an unusual move during a rate-cutting cycle. The jump suggests investors are beginning to demand higher compensation amid the possibility that inflation may prove more persistent than expected.

Adding to the mix are concerns over rising federal debt, climbing yields in Japan, and expectations that Kevin Hassett seen as the leading candidate to chair the Fed when Powell’s term ends in May could take a more aggressive stance on cuts.

The pause is also reshaping the narrative among portfolio managers. Some, like Chris Grisanti, prefer a solid economy even if it means no additional cuts in 2026; others, like Art Hogan, warn that predicting the Fed’s next move will become far more difficult.

The result is a market climbing against the current: supported by the recent momentum from rate cuts, yet now forced to confront a darker landscape where AI is no longer pure promise and bonds hint that structural risks remain firmly in place.