23.09.25 - Narrow path - resilience or denial?

Last week, the Federal Reserve (Fed) delivered a quarter-point rate cut, sparking renewed enthusiasm across equities. Investors are now speculating on further easing, with attention shifting to Fed Chair Jerome Powell’s upcoming remarks.

However, there is a wide dispersion of views within the Fed: 19 members in total, 10 support two rate cuts by year-end, 9 argue for one cut, none or even higher rates.

For 2026, the Fed projects a single quarter-point reduction, while traders are pricing in two to three more rate cuts next year. This highlights a clear gap between market expectations and a significantly more conservative guidance by Fed.

Markets:

• US equities: S&P 500, Nasdaq, Dow, and small-caps index at record highs.

• Gold on record high with the gold price currently trading at USD 3’770/oz

• US 10-year yields climbed from 4.0% to 4.15% in less than a week

• Cryptos negative performance since the Fed’s move

My View: Wall Street is walking a narrow path — between resilience and denial. The rally reflects confidence in the Fed’s support and in technology’s transformative momentum, with Nvidia and AI peers driving sentiment.

Yet, investors appear willing to ignore significant risks: political instability, tariffs, and the possibility that Powell may dampen expectations. September’s strong performance, despite its seasonal reputation for weakness, adds to the sense of complacency.

History reminds us that markets often display peak confidence just as caution is most warranted. The current surge looks less like recognition of fundamentals and more like denial of looming risks. Inflation and labor market data will be decisive for the Fed’s next steps, and any shift in tone — or renewed geopolitical flare-ups — could quickly destabilize this fragile equilibrium.

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