Stocks Keep Climbing on Rising Confidence in Fed Rate Cuts

US equity futures moved higher on Wednesday, supported by growing confidence that the Federal Reserve is preparing to cut interest rates sooner rather than later. The shift in expectations helped keep bullish sentiment intact as markets headed into the Thanksgiving break. Across the Atlantic, UK government bonds lost ground ahead of a closely watched budget announcement.

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The S&P 500 appeared on track to add to its recent momentum, extending a 3.5% rally that unfolded over the past three sessions. Technology stocks recently under pressure led the rebound as investors regained their appetite for risk following several choppy weeks.

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Meanwhile, Treasury yields ticked higher as bonds surrendered part of Tuesday’s rally, which had been fueled by speculation that White House National Economic Council Director Kevin Hassett is emerging as the leading candidate for the next Federal Reserve chair. Markets view Hassett as more dovish than other contenders, a profile that generally supports lower borrowing costs.

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Investors have been steadily warming back up to equities after early-November anxiety over lofty AI valuations triggered a pullback. Concerns that the market had run too far too fast prompted some traders to take profits, particularly in high-growth technology names.

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But sentiment shifted in recent days as delayed economic data began to reveal pockets of softness across several corners of the US economy. The combination of cooling data and a softer tone from Fed officials reignited bets that policymakers could deliver a rate cut as early as December.

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“For now, the market is back to pricing a 90% probability of a Fed cut next month,” ING strategists Padhraic Garvey and Michiel Tukker wrote, noting that the renewed confidence in easier policy has clearly helped bolster risk assets. The prospect of lower rates tends to support equities by reducing financing costs, improving corporate earnings potential, and enhancing the relative appeal of stocks versus bonds.

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While US traders are focused on the Fed, attention in the UK is shifting toward Chancellor Rachel Reeves’ high-stakes second budget. Reeves faces an uphill task: she must present a fiscal plan robust enough to reassure lawmakers who have warned Prime Minister Keir Starmer that his government is losing political goodwill, while also addressing the concerns of gilt investors demanding a higher premium for holding UK debt. The spread between UK yields and those of the US, Germany, and Japan has widened as investors question the country’s fiscal trajectory.

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“Reeves will need to deliver a convincing plan,” said Fawad Razaqzada, market analyst at City Index. “If she doesn’t, UK assets could face a rough ride.” Analysts caution that gilt markets remain particularly sensitive, having bounced between gains and losses as traders assess whether the government’s policy direction is credible enough to stabilize borrowing costs.

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Currency markets have reflected this caution as well. The British pound has been essentially range-bound, drifting sideways while investors wait to see whether the government can strike a balance between fiscal responsibility and economic support. Any sign that the budget overshoots on spending without matching revenue measures could deepen concerns about the UK’s long-term debt outlook, potentially putting additional pressure on both the currency and the gilt market.

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As the week progresses, global market performance will continue to hinge on rate expectations, macroeconomic data, and headline risk from both Washington and London. For US investors, the central question is whether incoming data will reinforce the Fed’s growing openness to easing. A December rate cut once considered unlikely is now seen as a distinct possibility if economic indicators continue to soften and inflation remains under control.

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In the UK, traders are bracing for volatility as Reeves lays out her latest fiscal vision. A credible budget could help anchor the gilt market, narrow spreads, and provide some stability for the pound. A misstep, however, could amplify existing concerns and create fresh turbulence for UK assets.

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Both regions face unique challenges, but the underlying theme is the same: markets are highly sensitive to policy signals. With interest-rate expectations shifting and fiscal decisions under scrutiny, investors are navigating a landscape where sentiment can turn quickly. For now, optimism in the US is keeping equities supported, while uncertainty in the UK has left traders cautious and selective.

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