It was a strange week on Wall Street with the S&P 500 and the Nasdaq posting losses, while the Dow gained – signaling the first signs of a rotation out of the technology sector .The Federal Reserve’s interest rate decision was offset by a slump in the artificial intelligence trade.
On Wednesday, the Fed delivered a third straight 25 basis point interest rate cut. The commentary by the Fed Chair signaled bullish expectations for economic growth and a largely unchanged outlook on the unemployment rate. But AI trade took a hit after disappointing quarterly reports from Oracle and Broadcom. Oracle’s guidance and increased spending forecast disappointed investors while Broadcom warned of margin pressures, and its backlog for AI product orders was underwhelming.
For the week, the S&P slipped 0.6%, while the Nasdaq retreated 1.6%. The Dow advanced 1.1%.
Future Wealth’s View
As the year winds down, this is a good time to recap the year that has taken investors through a bumpy ride. The market almost hit bear market territory in early April after Trump’s announcement of significant global tariff rates shocked the world. However, the market bounced back quickly after Trump reversed. The market began to reach new highs in the second half thanks in part to Trump’s tax cuts and the Federal Reserve’s interest rate cuts. The economy has remained on solid footing, inflation is inching up but has not surged, as some expected, and the artificial intelligence trade continues to be resilient despite many investors questioning valuations and AI related capital expenditures. More recently, there are signs that unemployment is rising—especially for the most vulnerable workers. Layoff announcements are piling up leading to a K shaped economy where the wealthy continue to spend wildly while the middle to lower income households are cutting back on discretionary spending.
The S & P 500 index is currently in a period that we’ve rarely experienced, and history couldn’t be less clear about what comes next. The stock market soared in 2023 and 2024, generating returns of over 24% and 23%, respectively. Back to back gains of more than 20% don’t come around too often. By all accounts, it looks like we will finish the year with the S&P 500 posting >15% return for 2025, which is pretty impressive.
We believe that the market can continue to rally in 2026, but at some point, we are likely to experience another recession or a significant pullback. That’s part of the economic cycle. In the meantime, we expect more volatility as the AI trade comes under pressure.
History often rhymes but rarely repeats itself.