Going into last week, investors were keenly focused on a couple of things: FOMC meeting and Big Tech earnings. Benchmark interest rates were lowered on Wednesday, but there was no commitment to do so again in December. And, with 5 of the Magnificent 7 tech giants reporting, post-earnings reaction hardly exuded confidence. All this while investor sentiment leans heavily bullish.
 

The FOMC (Federal Open Market Committee) met last week and both gratified and disappointed markets. As expected, the fed funds rate was reduced by 25 basis points to a range of 375 basis points to 400 basis points. The benchmark rates peaked in September last year at a range of 525 basis points to 550 basis points, so there has already been quite a bit of easing, even though the economy is anything but falling apart. Markets nevertheless were expecting another cut in December, followed by two more next year.

Jerome Powell, Federal Reserve chair, was not willing to commit to that. Jeff Schmid, Kansas City Fed president, in fact, voted to keep the rates unchanged last week, even as Stephen Miren, newly appointed governor and on leave as the chair of the Council of Economic Advisors, dissented to vote for a jumbo 50-basis-point reduction.

Despite, Powell’s “not a foregone conclusion” warning, futures traders are still betting on a cut in December (Chart 1). Come this December, the Fed is, however, aiming to end a three-year-long quantitative tightening during which its balance sheet went from $8.97 trillion to the current $6.59 trillion. If the central bank continued to taper at the current pace, the balance sheet was on pace to reach $5.1 trillion by the end of December 2026. It will, however, be expanded again in the early months next year.
 

As far as the benchmark rates were concerned, there was a reason why the likes of Powell and Schmid were expressing caution. Operating under a dual mandate of stable prices and maximum employment, the Fed for over a year now is singlehandedly focused on the jobs market, which is coming in weaker than expected. Inflation, in the meantime, remains a full percentage point higher than the Fed’s goal of two percent.

In 2022, headline and core CPI (consumer price index) peaked at four-decade highs of 9.1 percent and 6.6 percent in June and September respectively, subsequently reaching 2.3 percent and 2.8 percent this April. Both metrics have trended higher in the last several months. In the 12 months to September, they were 3.01 percent and 3.02 percent, in that order (Chart 2). The last time they were under two percent was more than four years ago. This probably gives most FOMC voting members ample reason to go slow.
 

Ahead of last week’s FOMC meeting, the major equity indices – the large-caps in particular – acted as if they expected continued easing. The S&P 500 six sessions ago gapped up to break out of short-term horizontal resistance at 6750s. Momentum continued last Monday with another gap-up session. By Wednesday, the day the FOMC’s policy decision was made public, the large cap index tagged a fresh high of 6920, although bulls were unable to hang on to it. By Friday, the index closed at 6840, still up 0.7 percent for the week but substantially under Wednesday’s high. In the end, it finished with a gravestone doji on the weekly (Chart 3).

This gives the bears yet another opportunity to press their case this week. Since July, several potentially bearish candles have formed on the weekly, but they all went begging. For momentum to swing in bears’ favor, they need to first capture 6750s and then 6550s. By then, the 50-day moving average at 6640 would have been breached.
 

Hindsight is always 20/20, but the way the Russell 2000 hesitated for several weeks just above a crucial technical level likely is a tell that small-cap investors were readying for last week’s mixed FOMC decision. Small-cap businesses by nature have a larger domestic exposure than their large-cap cousins, which also have international exposure. Lower interest would also help them as they tend to be leveraged.

On 9 April, the small cap index bottomed at 1733. Last November, it retreated after ticking 2466, which just edged past the prior high of 2459 from November 2021. On 18 September (this year), those highs were surpassed, tagging 2470 intraday. In the subsequent weeks, more strength followed, with a tag of 2542 three weeks ago; last Monday, that high was tested with an intraday tag of 2540 – unsuccessfully. When it was all said and done, the Russell 2000 finished the week lower 1.4 percent to 2479 – essentially at the prior three highs (Chart 4). Risks of a triple top have not gone away.
 

While equity bulls were denied of the expected endorsement by Powell of continued easing in the December meeting, mega-tech earnings delivered, but post-earnings reaction was a mixed bag – if that.

Of the five Magnificent 7 reporting their September quarter last week, results from Microsoft (MSFT), Facebook owner Meta (META) and Apple (AAPL) got a thumbs-down, while those from Google parent Alphabet (GOOG) and Amazon (AMZN) were given a thumbs-up, but even here the latter two finished way off their fresh highs.

The Nasdaq 100, too, posted a fresh intraday high of 26182 on Wednesday but closed the week at 25858, still up two percent for the week but was up 3.2 percent at Wednesday’s high. In the end, the weekly formed a shooting star (Chart 5). This is a potential opening for tech bears, who have had several opportunities in the last few months but were unable to convert those. If they prevail this time around, bulls will try to defend 24200s – just below the 50-day at 24519.
 

Results from the five tech giants above pushed the blended 3Q25 operating earnings estimates for S&P 500 companies past $70 – $70.27, to be exact. This is as of last Thursday, with earnings up $3.36 from 10 days prior. The spike seen in Chart 6 is not normal. At the end of the September quarter, the sell-side was expecting $66.88; in July last year, these analysts were expecting $71.54.

Despite these numbers, the fact that the bulls were unable to hang on to all of the week’s gains speaks of the fact that (1) these indices have had a phenomenal rally since April, and (2) the interest-rate path is not as clear as the futures market would have us believe.
 

There is a lot of paper profit, and the temptation to lock it in can rise even if the indices come under a little pressure, regardless we are in a seasonally favorable last two months of the year. Hence the importance of crucial technical levels.

This is particularly so considering that the bullish sentiment remains elevated. As a matter of fact, the Investors Intelligence ratio of bulls to bears hit 4.3 as of Tuesday last week. Readings above four are very rare, with last week’s occurring since July last year (Chart 7). The ratio was already north of three in the prior eight weeks.

Particularly noticeable last week was the bearish count, which at 13.5 percent was the lowest since early 2018. Back then, in the week to January 10^th, bears registered 13.5 percent, then went sub-13 in the next three weeks before rising. It is entirely possible things proceed similarly this time around for at least a while but that would only help sentiment go deeper into lop-sided territory.

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