A trader works, as a screen broadcasts a press conference by U.S. Federal Reserve Chair Jerome Powell following the Fed rate cut announcement, on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., Oct. 29, 2025.
Brendan McDermid | Reuters
The S&P 500 was relatively unchanged on Wednesday ahead of the Federal Reserve’s interest rate decision.
The broad market index traded down 0.1%, weighed down by a more than 2% decline in shares of Microsoft. The Dow Jones Industrial Average rose 55 points, or 0.1%, while the Nasdaq Composite declined 0.4%.
Stocks have been teetering between slight gains and losses in recent sessions as investors await this week’s key Fed meeting, which is the final one of the year. The Fed is widely expected to deliver its third straight interest rate cut of a quarter percentage point, with fed funds futures suggesting a roughly 90% chance of a decrease, according to CME’s FedWatch tool.
Sentiment among members of the rate-setting Federal Open Market Committee remains divided, however, as some favor cuts to stave off further labor market weakness and others believe another cut could worsen inflation. Investors are looking to gauge members’ sentiment from the post-meeting statement and Chair Jerome Powell’s highly anticipated news conference Wednesday afternoon.
“Market expectations for the Fed have turned sharply dovish, raising the risk of outsized reactions if the Fed delivers a hawkish surprise,” said Bank of America analyst Vittoria Volta. “Against a backdrop of a potential Fed chair announcement and a wave of post-shutdown economic data, December may deliver more surprises, and volatility, than usual.”
The previous session saw lackluster moves in the broader market, where the broad-based S&P 500 and 30-stock Dow closed in the red, while the tech-heavy Nasdaq rose slightly.
The S&P 500 sits just around 1% below its last record close posted on Oct. 28, which was the day before the last Fed decision. On Oct. 29, the Fed cut rates, but Powell signaled that another reduction was not certain for December. That sent stocks lower that day and started a rough patch for equities through most of November until some Fed members began to signal a December cut may be in order. The benchmark then rebounded back to the near-record level its currently at.
A sector rotation has emerged, however. The Russell 2000 index of small-cap companies hit a fresh all-time intraday high on Tuesday, strengthened by the prospect of upcoming rate cuts. Smaller companies tend to benefit from rate cuts because their borrowing costs are more linked to market rates, and could therefore boost their profit margins.
Wells Fargo Investment Institute global equity strategist Doug Beath noted that the Russell 2000 is underperforming the S&P 500 this year, but has rallied since Nov. 21 and outperformed the broad-market index since that date.
“The favorable change for small-cap equities is consistent with our view that equity market breadth is widening,” Beath said. “We believe investors are looking beyond the current economic soft patch in anticipation of accelerating economic growth through 2026 because of positive secular trends already in place — tax cuts that will deliver what should be the largest refunds since 2021, deregulation, more Fed rate cuts, and continued technology capex growth.”
