Source: BlockMedia Original Title: “What’s more important than December is 2026”…What the Market Really Wants to Hear from the Fed Meeting Original Link:

The Fed FOMC Meeting Becomes the Year-End Market’s Key Watershed

The upcoming Federal Open Market Committee (FOMC) meeting on the 9th-10th is expected to become a decisive watershed for year-end stock market trends. The market is focused on the possibility of a benchmark rate cut, and whether a year-end “Santa Claus Rally” materializes will depend on the Fed’s policy stance.

December is typically a strong period for U.S. stocks, a phenomenon known as the “Santa Claus Rally(Santa Claus Rally),” which refers to an upward trend from year-end into the start of the new year. However, this year, the Fed’s benchmark rate decision is becoming the key variable determining this trend.

According to the CME FedWatch tool, the market is currently pricing in an approximately 87% probability of a 25 basis point (0.25%p) rate cut at the December meeting. Expectations of a rate cut have been driving the market since last month. The S&P 500 Index fell as much as 5.1% in mid-November, but rebounded after Thanksgiving, posting a 0.3% gain in the first week of December and nearing record highs.

Dave Grecsek, Managing Director of Investment Strategy and Research at Aspirant, said in a December 7 (U.S. time) interview with MarketWatch, “The November sell-off was the result of a combination of worries about a U.S. government shutdown and caution over overheated artificial intelligence (AI) themes,” noting that, “After the government shutdown ended and official economic data resumed, the Fed’s basis for rate cuts was reinforced.”

He particularly emphasized that continued rate cuts into 2026 should be watched more closely than whether there is a cut in December. Grecsek stated, “The market expects 2-4 rate cuts throughout 2026, and this expectation is the real driver behind the year-end rally.”

Therefore, this FOMC meeting is not just about the rate decision. The Fed’s quarterly Summary of Economic Projections (Summary of Economic Projections) will also be a key factor in determining market direction. eToro U.S. investment analyst Brett Kenwell said, “The Fed’s outlook for interest rates in 2026 could change the year-end stock market mood,” adding, “If, like last year, Chair Powell makes remarks after the meeting that dampen future rate cut expectations, it could throw cold water on the market.”

In addition to the Fed’s monetary policy stance, the fact that Chair Powell’s term ends in May next year could also be a variable. Former President Trump recently stated he would “nominate a more dovish next chair,” and such expectations for a continued easing bias are also influencing the market.

In the short term, heightened volatility must also be watched. According to BNP Paribas data, options expiring December 10 reflect a 1.3% volatility for the S&P 500 Index, the highest expected volatility before year-end. Prospero AI CEO (CEO) George Kayla said, “The current market is in a state of uncertainty and high expectations, making direction hard to predict,” and advised, “In the short term, it is necessary to flexibly seize selling opportunities.”

He further explained, “In today’s highly volatile intraday market, a partial profit-taking strategy is needed,” emphasizing, “Flexible response is more important than buying or selling all assets at once.”

Meanwhile, last week, major U.S. indexes closed slightly higher ahead of the Fed meeting. The Dow Jones Industrial Average rose 0.5% for the week, the S&P 500 gained 0.3%, and the Nasdaq climbed 0.9%. In addition to the Fed meeting this week, October job openings data and weekly new unemployment claims—key labor market indicators—will also be released and are expected to be a focal point for market participants.