Markets have rallied to all-time highs but the rally is running out of steam. Investors are becoming cautious following a mixed close yesterday and positive developments from the Federal Reserve’s rate decision and U.S.-China trade talks. While Federal Reserve Chair Jerome Powell’s hawkish comments tempered expectations for a December rate cut, perceived progress in the Trump-Xi summit—touted by President Trump as “outstanding” with new deals—has boosted sentiment, particularly in tech and chip sectors. Earnings season remains a key driver, with strong beats from AI leaders like Nvidia (which hit a $5 trillion market cap milestone) offsetting mixed results from Microsoft, Meta, and Alphabet.
Shares in Caterpillar were sharply higher after the close on positive results linked to AI. As we are in the midst of the earnings season and AI is boosting profits, there is a good chance US markets won’t decline until the end of the reporting season. However, anything is possible, a lot of the good news is priced in, and not all companies beat estimates. Microsoft and Meta were down in after hours. Investors are also cautious because stocks are overvalued and Powell was not dovish yesterday. Powell’s signal that a December cut “is not a foregone conclusion” has triggered a pullback.