MW Dow gains almost 500 points, S&P 500 ends shy of record high after Fed's final rate cut of 2025 bolsters case for early start to 'Santa Claus rally'
By Vivien Lou Chen and Isabel Wang
Stock investors cheered Wednesday's Federal Reserve decision to cut rates, sending the S&P 500 shy of a record close and the Dow Jones Industrial Average up almost 500 points.
The S&P 500 index narrowly missed a fresh record close Wednesday and the Dow Jones Industrial Average finished with strong gains after the Federal Reserve's decision to deliver a final quarter-point rate cut for 2025, which gave investors optimism that equities can keep climbing through year's end.The Dow DJIA rose 497.46 points, or almost 1.1%, to close at an almost one-month high of 48,057.75, while the S&P 500 SPX advanced 46.17 points, or 0.7%, to end at 6,886.68, or just shy of its 6,890.89 record close reached on Oct. 28. Meanwhile, the Nasdaq COMP lagged, finishing up by 77.67 points, or 0.3%, at 23,654.16, the highest level since Nov. 3.Wednesday's policy decision by the central bank bolstered investor confidence about the three-year rally in stocks, which has thrived despite uncertainty around inflation, the U.S. deficit, a weakening labor market and higher long-term borrowing costs for households and the economy.
Stocks also have benefited from a backdrop where strong corporate-earnings growth, the promise of AI, and stimulus expected next year from President Donald Trump's signature tax and spending package could give fresh legs to the rally.
Separately, some market participants were factoring in the likelihood that further Fed easing might take place under Kevin Hassett, Trump's likely pick to replace Fed Chair Jerome Powell. Yet the overall tone in the wake of the Fed meeting was cautiously bullish.
"This is the beginning of the 'Santa Claus rally' because the market got the drug it wanted," said Mark Malek, chief investment officer at Siebert Financial, of the rate cut. "But as with any other drug, it got its hit - and now it has to sit and survive on that hit for the next couple of weeks."
Potential stumbling blocks include the release of heaps of economic data delayed by the government shutdown, which could point to further weakness in the labor market or reinforce the stickiness of inflation.
Marta Norton, chief investment strategist at Empower Investments, noted that although lower interest rates are positive, "investors are not getting that kind of waterfall effect that people would want, with cut upon cut upon cut."
Meanwhile, Jay Hatfield, chief executive and founder of Infrastructure Capital Advisors in New York, said "there's no reason to bail out of this market, particularly during a seasonally strong period."
The S&P 500 index is on pace for a 17.1% year-to-date gain, while the Dow is up almost 13% so far this year and the Nasdaq has advanced 22.5% in 2025.Beyond cutting the fed funds target range to between 3.5% and 3.75% on Wednesday, Fed officials stuck by their median forecast for just one rate cut in 2026. They also announced what are known as "reserve management purchases" totaling about $40 billion in Treasury bills that start on Friday. These purchases of Treasury bills are designed to inject more liquidity into short-term funding markets, by using the Fed's balance sheet. Yields on shorter-dated Treasurys fell on the day because of the timing of the reserve management purchases, which was a "bit unexpected," according to Brendan Murphy, Boston-based head of fixed income for North America at BNY Investments' affiliate Insight Investment.
"This is not at all an easing maneuver," said Malek at Siebert. "It's clearly them trying to address liquidity issues into year-end."
Before Wednesday's central-bank decision, market participants were "a little cautious about the Fed possibly not looking for more rate cuts beyond Wednesday," said Thomas Urano, co-chief investment officer at Sage Advisory in Texas. "Powell threaded the needle by acknowledging that they may not need to cut, but are open to cutting in 2026 and 2027."
Of note, Hassett has made efforts to soothe some concerns about what he might do as head of the central bank.
During a Wall Street Journal CEO Council event on Tuesday, Hassett said that although there is plenty of room to cut rates in coming months, he would rely on his own "judgment, which I think the president trusts, and the firm commitment to not being partisan."
Should Hassett become Fed chair, the key question for investors is whether the institution maintains its independence. "Even with Hassett signaling he wouldn't bow to pressure, the perception that a Trump-aligned Fed might ease too aggressively keeps inflation and stability concerns alive heading into 2026," said Aaron Hill, a U.K.-based chief market analyst for FP Markets, an online trading and foreign-exchange broker.Joy Wiltermuth contributed.
-Vivien Lou Chen -Isabel Wang
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(END) Dow Jones Newswires
December 10, 2025 16:52 ET (21:52 GMT)
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