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Market Overview – Fed Cut Meets Violent Sector Rotation
On Wednesday, the Federal Reserve cut the Fed Funds target range by 25 bps to 4.00%–4.25%, as widely expected, and maintained its quantitative tightening pace.
- Major U.S. indexes ended mixed with sharp sector divergence: large-cap tech sold off while cyclicals gained, defining the session’s character.
Pre- and Post-Decision Dynamics
- Morning defensive shift: Ahead of the 2 p.m. announcement, investors feared a “hawkish-dovish” Fed statement and rotated out of high-beta sectors—AI, big tech, crypto—locking in profits. Low-valuation defensives such as industrials, consumer staples, and insurers attracted inflows.
- Afternoon whipsaw: After the cut, the S&P 500 spiked, then plunged during Powell’s “hawk-dove” remarks, finally closing with a doji candle, bouncing off its 10-day moving average. This deep-V reversal reflected algorithmic and options-driven institutional trading; large funds are likely waiting until Friday’s derivatives expiry to set direction.
Fed Guidance – “Dovish with a Hawkish Core”
Summary of Economic Projections (SEP):
- GDP: 2025–27 growth estimates lifted to 1.6%, 1.8%, 1.9% (from 1.4%, 1.6%, 1.8%).
- Core PCE inflation: nudged up to 3.1% (2025) and 2.6% (2026).
- Rate path: median funds rate lowered to 3.6%, 3.4%, 3.1% for 2025–27, implying 50 bps more cuts this year.
- Split committee: 7 see no further cuts in 2025, 2 see one more, 10 foresee at least two.
Powell’s remarks: Branded the move as “risk-management easing”, citing a softening labor market and stable long-term inflation expectations. He hinted at a shift from “fighting inflation” to “supporting employment,” yet avoided committing to further cuts, fueling intraday volatility.
Technicals & Volatility Outlook
- Key levels: S&P 500 faces resistance near 6,600 (heavy call option open interest) and support around 6,500 (monthly average and gamma pivot).
- Currently in a positive gamma regime, but a break below 6,500 could flip to negative gamma, amplifying moves.
- Traders expect larger swings after Friday’s options expiry once hedges unwind.
Stock Highlights
China ADR Surge & U.S.–China Chip Tensions
- Nvidia (NVDA): Dropped after China’s cyberspace regulator ordered ByteDance and Alibaba to halt purchases of its China-specific RTX Pro 6000D AI chips. CEO Jensen Huang will meet Trump to discuss China operations.
- Alibaba (BABA): Rallied on expectations of domestic AI chip self-sufficiency, with a next-gen chip reportedly surpassing A800 specs.
- Baidu (BIDU): Jumped as its “Kunlun” AI chip excelled in China Mobile’s AI server tender; BOC International raised target to $157.
U.S. Tech & Mobility
- Lyft (LYFT): Fell as it joined Uber to launch an autonomous ride-hailing pilot in Nashville, sparking profit-margin concerns and dragging Uber lower.
- Subhub (SUBH IPO): Debuted at $23.5 but slid 6.4% amid sluggish growth and concentrated insider control.
Crypto & Fintech Volatility
- Figr (FIGR): Spiked 8% then reversed after a director sold 469k shares (~$11.7M).
- Circle (CRCL): Early gains on U.K.–U.S. crypto cooperation faded as quant funds unwound.
Outlook
Short-term: Expect turbulence as the market digests the Fed move and $5T in derivatives expire Friday.
Medium-term: Liquidity tailwinds remain with another 50 bps of cuts likely this year and the Fed pivoting toward employment support. Watch U.S.–China AI chip negotiations and continued China ADR “domestic substitution” momentum.
