Stock Market Analysis: December 8, 2025 Fed Rate Cut Expectations Drive Gains

This analysis is based on the Wall Street Journal (WSJ) live coverage [1] published on December 8, 2025, reporting that U.S. stocks were boosted by expectations of a Federal Reserve (Fed) rate cut on the same day. The CME FedWatch Tool data showed an 88% probability of a rate cut, up from less than 67% a month earlier, reflecting growing investor confidence in the policy shift [2].

Stock futures performance included December Nasdaq 100 E-Mini futures (NQZ25) rising 0.42%, leading gains among major indices [3]. For the full trading day, major indices closed with modest gains: Nasdaq Composite (^IXIC) +0.31% at $23,578.13, S&P 500 (^GSPC) +0.19% at $6,870.40, and Dow Jones Industrial Average (^DJI) +0.22% at $47,954.99 [0].

Sector performance was led by Real Estate (+1.39%), Communication Services (+1.05%), and Consumer Cyclical (+0.86%)—sectors that typically benefit from lower borrowing costs associated with rate cuts [0]. In contrast, Utilities (-2.05%), Basic Materials (-1.17%), and Healthcare (-0.68%) were the worst-performing sectors [0].

Individual stocks saw notable movements: NetApp (NTAP) gained over 5% in pre-market trading after better-than-expected FQ2 results, while Ulta Beauty (ULTA) climbed more than 10% following a strong Q3 earnings report that included beating net sales estimates and raising full-year forecasts [3][4].

1. Economic Context Driving Expectations
   : Rate cut anticipation was fueled by recent weak economic data, including sluggish retail sales, declining consumer confidence, and accelerating job losses [3].
2. Sector Rotation Aligns with Rate Cut Narrative
   : Real Estate benefits from reduced mortgage rates, while growth-oriented sectors like Communication Services and Consumer Cyclical gain from cheaper capital for expansion.
3. Market Sensitivity to Fed Guidance
   : The market’s reaction hinges on the Fed’s actual rate cut size and forward guidance from Chair Jerome Powell—any deviation from investor expectations could trigger volatility [1].
4. Emerging Balancing Risks
   : Rising 10-year U.S. Treasury note yields (2-week high of 4.12%) and 10-year breakeven inflation rates (2-week high of 2.282%) could limit future gains and complicate the Fed’s decision-making [4].

• Risks
  :
  • Policy Mismatch
    : If the Fed fails to cut rates or delivers a smaller cut than expected, stocks could experience a sharp correction due to mismatched expectations [1].
  • Yield Competition
    : Rising bond yields may divert investor capital from equities to fixed income, pressuring stock prices [4].
  • Inflation Headwinds
    : Elevated inflation expectations could force the Fed to adopt a more cautious stance, reducing the likelihood of future rate cuts [4].
• Opportunities
  :
  • Rate Cut Benefits
    : Lower corporate borrowing costs could boost earnings and support growth in interest-sensitive sectors (e.g., Real Estate, Technology).
  • Fundamental Strength
    : Strong earnings reports from NTAP and ULTA highlight potential opportunities in stocks with solid fundamental performance.
• Monitoring Factors
  : Fed rate cut size/forward guidance, Powell’s press conference, upcoming economic data (job market, inflation, retail sales), and global market trends.

On December 8, 2025, U.S. stocks gained amid Fed rate cut expectations, with the Nasdaq leading futures gains and major indices closing modestly higher. Real Estate, Communication Services, and Consumer Cyclical sectors outperformed, while Utilities, Basic Materials, and Healthcare underperformed. NTAP and ULTA saw significant gains following strong earnings reports. The CME FedWatch Tool indicated an 88% rate cut probability, up from 67% a month prior. Decision-makers should closely monitor the Fed’s announcement and subsequent economic data to assess market direction.