Year-End Markets Rally with Help from the Fed
Since mid-September, the Fed has delivered three rate cuts despite an economy operating at high speed. Powell has justified this stance.
Quick overview
- The S&P 500 is approaching the 7,000-point threshold as the U.S. economy shows strong growth and low inflation.
- President Trump's new monetary policy rule has not significantly impacted market momentum, which remains strong under Jerome Powell's leadership.
- Recent macroeconomic data indicates a 4.3% annualized growth rate in Q3, with S&P 500 earnings per share rising 13.6% year over year.
- The Federal Reserve's rate cuts and liquidity injections have contributed to the year-end rally, stabilizing markets despite earlier volatility.
The key question today is whether the S&P 500 will have enough time to cross the 7,000-point threshold before year-end.
The U.S. economy is roaring. Equity markets are celebrating, and bonds—after the latest inflation report—are offering little resistance. Deeper concerns can wait until 2026. For now, it is the season of the Santa rally. After two years of absence, the sleigh has returned to Wall Street right on time, delivering new record highs in equities and precious metals.
Against this backdrop, President Trump introduced a new rule for monetary policy: “Anyone who disagrees with me will never chair the Fed.” Markets, however, remain largely unfazed. Jerome Powell continues to lead the Federal Reserve independently, even as his term expires in May. That reckoning belongs to the longer term. The immediate focus remains market momentum.
Strong Growth, Tame Inflation
Recent macroeconomic data has reinforced the rally. The U.S. economy expanded at a 4.3% annualized pace in the third quarter. Although released late in the year, the figure carried significant weight. Inflation, measured imperfectly due to the government shutdown, slowed in October and November—welcome news for both bonds and risk assets.
Importantly, easing price pressures were confirmed before strong growth data could reignite concerns about long-term interest rates. The sequence proved ideal for equities. Corporate earnings had already reflected this strength: S&P 500 earnings per share rose 13.6% year over year in the third quarter, far exceeding expectations, with forward projections pointing to continued double-digit growth.
The Fed’s Invisible Hand
Markets also owe much of the year-end strength to the Federal Reserve. Since mid-September, the Fed has delivered three rate cuts despite an economy operating at high speed. Powell has justified this stance by pointing to unexpected labor market weakness. While immigration restrictions have reduced labor supply, labor demand has declined even faster, pushing unemployment higher.
Beyond interest rates, the Fed halted quantitative tightening in December and resumed liquidity injections to prevent funding stress, adding at least $40 billion this month alone. These actions helped stabilize markets during a critical period.
The Santa rally caps an exceptional year. Volatility episodes earlier in the year briefly threatened momentum, but Fed support prevailed. Equities and metals now lead the advance, powered by strong seasonality and favorable liquidity conditions. In markets, inertia matters—and for now, it remains firmly on the bulls’ side.
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