December Rate Cut Uncertainty Creates Equity Headwinds - Evercore Analysis

This analysis is based on the CNBC Power Lunch interview with Julian Emmanuel, Senior Managing Director at Evercore ISI, published on November 13, 2025 [1]. The interview highlighted how uncertainty surrounding a potential December Federal Reserve rate cut has become a significant headwind for equities.

The market sentiment shift on November 13, 2025, reflected deep concerns about Federal Reserve policy uncertainty. Major indices experienced substantial declines, with the S&P 500 closing down 1.33% at 6,735.39, the NASDAQ Composite falling 1.69% to 22,869.05, and the Dow Jones dropping 1.49% to 47,455.43 [0]. The Russell 2000 was particularly hard hit, declining 2.82% to 2,381.72, indicating heightened sensitivity to rate expectations among smaller companies [0].

Sector performance analysis revealed a clear rotation into defensive positions. Consumer Defensive stocks gained 0.88%, while Healthcare added 0.14%, outperforming cyclical sectors significantly [0]. The worst-performing sectors included Utilities (-3.04%), Consumer Cyclical (-2.33%), Energy (-2.15%), Real Estate (-2.14%), and Technology (-1.96%) [0]. This pattern suggests investors are reducing exposure to rate-sensitive and growth-oriented investments amid policy uncertainty.

The core driver of this market weakness stems from a dramatic recalibration of December rate cut expectations. According to market data cited in the analysis, the probability of a December rate cut has fallen from 95% one month ago to just 49.4% - essentially a coin toss [1]. This shift represents a fundamental change in market positioning and risk assessment.

Several factors contribute to the growing uncertainty:

1. Divergent Fed Commentary
   : Boston Fed President Susan Collins has advocated holding rates steady, citing persistent inflation concerns and the need for greater economic clarity [1]. This represents a shift from the more accommodative stance markets had been pricing in.

2. Data Gaps from Government Shutdown
   : The recent government shutdown has created critical information voids, with some October economic reports potentially never being released [1]. This data scarcity complicates the Fed’s decision-making process and market forecasting.

3. Inflation Persistence
   : Despite some easing, inflation remains significantly above the Federal Reserve’s 2% target, limiting the central bank’s flexibility to cut rates [1].

The uncertainty has created complex dynamics for market participants. Reduced rate cut expectations increase borrowing cost assumptions across the economy, while higher rates compress equity multiples - particularly problematic for growth stocks that dominate the NASDAQ [0]. The rotation into defensive sectors suggests investors are actively managing risk exposure in response to policy uncertainty.

The December 9-10 FOMC meeting represents a critical decision point with additional complexity. Fed Chair Powell’s term ends in May 2025, and FOMC composition changes in January, potentially influencing policy dynamics [1]. These institutional factors add another layer of uncertainty to market expectations.

1. Elevated Market Volatility
   : Policy uncertainty typically increases market volatility and trading volume, creating challenging conditions for short-term positioning [0].

2. Valuation Compression
   : Higher-for-longer rate expectations could pressure equity valuations, particularly in growth sectors that have benefited from low-rate environments [0].

3. Liquidity Tightening
   : Reduced rate cut expectations may tighten financial conditions, potentially impacting corporate financing and consumer credit availability.

1. Fed Communications
   : Additional comments from FOMC members, particularly voting members, could provide clarity on policy direction [1].

2. Data Quality Assessment
   : When delayed economic reports are eventually released, their quality and completeness will be crucial for market positioning [1].

3. Market Technicals
   : Key support levels and sentiment indicators will help gauge market resilience amid uncertainty [0].

4. Treasury Market Dynamics
   : Yield curve movements and inflation expectations in bond markets will provide leading indicators of policy impact [0].

The current environment presents both challenges and opportunities. Defensive positioning has proven beneficial in the short term, but over-allocation to defensive sectors could miss potential upside if policy clarity emerges. The market’s reaction to Fed communications suggests high sensitivity, creating opportunities for tactical positioning around key data releases and policy announcements.

The dramatic shift from 95% to 49.4% probability of a December rate cut reflects genuine policy uncertainty stemming from data gaps and divergent views within the Federal Reserve [1]. Market participants have responded by rotating into defensive sectors and reducing exposure to rate-sensitive investments, as evidenced by the broad-based market decline on November 13, 2025 [0].

The SPDR S&P 500 ETF (SPY) closed at $671.91, down $11.46 (-1.68%), reflecting the overall market weakness [0]. This movement suggests investors are pricing in higher-for-longer rate scenarios, with particular impact on growth and technology stocks.

Decision-makers should maintain flexibility in their positioning while monitoring Fed communications and the eventual release of delayed economic data. The December FOMC meeting represents a critical inflection point that could either provide market relief or reinforce the current defensive positioning trend [1].

in investment planning, particularly for rate-sensitive sectors and growth-oriented strategies. The market’s reaction demonstrates how quickly sentiment can shift when expectations for monetary policy accommodation are called into question.