So Jerome Powell walked into Wednesday’s Fed meeting like that friend who says “we should probably leave the party early” but then ends up being the last one on the dance floor.
Here’s what happened: The Fed cut rates by 0.25% (as expected), but Powell spent the press conference basically saying “don’t get too excited, kids.” Classic Fed move – give with one hand, take away with the other.
But here’s the thing the market figured out while everyone was busy parsing Powell’s word salad: the Fed just stepped out of the way. And when the Fed stops being the party pooper, stocks tend to do happy things.
The Real Story is in the Dots (No, Not Connect-the-Dots)
While Powell was up there channeling his inner Eeyore, the Fed’s “dot plot” – basically where each Fed member thinks rates should go – told a different story. Turns out, there’s a whole faction of Fed officials who think Powell’s being too cautious.
Think of it like this: Powell’s the designated driver saying “maybe we should slow down,” while half his friends are already ordering another round. And guess what? Powell’s term is almost up, and his likely replacement is firmly in the “let’s keep this party going” camp.
Markets are smart. They don’t wait for the official announcement – they front-run it. So when they see the writing on the wall (or dots on the plot), they start positioning for lower rates before they actually happen.
Meanwhile, AI is Having Its Own Party
Here’s the beautiful part: while everyone was obsessing over Fed speak, the AI boom just kept… booming. Enterprise AI spending is still red-hot. Big Tech keeps beating earnings expectations. And companies are reshaping their entire business models around artificial intelligence.
AI doesn’t need rate cuts to thrive – it just benefits from them. It’s like having a friend who’s already fun at parties but becomes absolutely legendary when the music gets turned up.
When you combine strong earnings growth (thanks, AI) with the potential for multiple expansion (thanks, easier monetary policy), you get what Wall Street calls a “melt-up.” That’s finance speak for “stocks go brrrr.”
Santa Rally, Anyone?
Look, the setup is pretty textbook for a year-end rally. The Fed removed the biggest obstacle to higher stock prices. AI companies keep crushing it. And we’re heading into that magical time of year when fund managers who’ve been sitting on cash all year suddenly realize they’re underexposed and start chasing performance.
It’s like musical chairs, but instead of chairs, it’s stocks, and instead of music stopping, everyone realizes they need to buy before December 31st.
The hiking cycle is over. The AI revolution is accelerating. And Santa just got clearance from air traffic control.
Sometimes the stars align, and sometimes Jerome Powell accidentally gives them permission to shine a little brighter. This might be one of those times.