(These are the market notes on today’s action by Mike Santoli, CNBC’s Senior Markets Commentator. See today’s video update from Mike above.) Stocks continue to hesitate ahead of the Federal Reserve decision just below the old record highs and in the same spot where they sat before the prior central bank policy pronouncement. Since that point, markets priced out a December rate cut as the S & P 500 sustained the first 5% pullback since April, and then both those moves were almost fully reversed thanks to a dovish rhetorical pivot by key Fed members and late-year dip-buying dynamics backed by earnings overachievement and expectations of an early-2026 cyclical reacceleration. Last Fed meeting, Chair Jerome Powell had plenty of work to do in pulling bond traders away from pricing in a heavy probability of a December rate cut, which was not reflected in the FOMC’s collective view. This time, after Wednesday’s likely cut , there is not another one priced in fully for a few months, so Powell should see less need to make hawkish noises. The doves, who think the Fed has been stingy with its move away from restrictive policy, note that the Fed after Wednesday will have cut rates 175 basis points over 15 months — a truly rare occurrence when there has been no serious recession scare. This week has mostly seen low-volume churn with some interesting wrinkles in sector rotations and style movements. Entering the week, the tape was favoring a reflationary scenario, with transports, financials, specialty retail and commodities playing some notable catch-up. Today, the banks and consumer trade was hip-checked by comments by JPMorgan’s CFO at a conference describing consumer trends as “fragile.” JPMorgan (down 4%) and other big lenders quickly sold off hard. While it’s true that this came after weeks of strong gains that left room for hair-trigger profit-taking, it perhaps shows that investors have talked themselves into a “cyclical upturn” story that they either don’t fully believe or require ongoing proof of. Whether signal or noise, some of the lower-quality speculative stuff has a bid in advance of a universally anticipated rate cut. Silver prices are flying, crypto caught a flash bid and unprofitable tech stocks are outperforming. This is a moment where financial markets suggest money is pretty loose, while labor markets, consumer confidence and small-business hiring intentions reflect tightness. A tricky spot for the Fed, though with rates likely not far from “neutral” after Wednesday’s cut, the hazard of shifting to a wait-and-see posture is probably not particularly high. This is especially the case if the consensus call for a fiscal boost early in 2026 (tax refunds, lower withholding levels, capex incentives) is trustworthy. One difference between now and the previous Fed meeting is the setup in the Treasury market. Back then, the 10-year yield sat just under 4%. On Tuesday, it’s at 4.18%. Not a threatening level, but the pace of the increase has traders’ attention. Yields ticked slightly higher this morning after the JOLTS report showed more job openings than expected, though the quit, hiring and layoff rates still suggest a sluggish labor market. The migrations among AI plays remains a theme. Nvidia is getting no lift from news the Trump administration will allow the sale of some last-generation AI chips to China . Nvidia is at a price first reached at the end of the third quarter. Since then, all the love is flowing toward the Broadcom / Google axis of custom AI chips and away from the Nvidia/ Microsoft /OpenAI cluster, which continues to require more capital to get where it’s headed. The price action has been stark across this group. The market has no time at all for traditionally defensive or low-drama stocks. The underperformance of consumer staples and low-volatility stocks has rarely been more pronounced. The S & P 500 Low Volatility ETF (SPLV) has lagged the S & P 500 by more than 65 percentage points over the past three years, consumer staples by 70. A good sign for animal spirits and growth expectations, probably, but at some point, contrarianism will pay off here, won’t it? Food and beverage stocks are even more disowned than the rest of staples. And PepsiCo is gaining no traction after the company announced a steep cost-cutting program and price-lowering plan in a settlement with an activist investor . Pepsi is now notably cheaper than Coca-Cola on a P/E basis. For years, its snack-food exposure was an advantage, now it’s seen as a drag. These valuations haven’t diverged for long over prior cycles, for what it’s worth.
Stocks remain on hold ahead of Fed meeting with a few interesting sector rotations
