The S&P 500 has hit yet another all-time high to 6,901, as the VIX – the index that measures volatility – fell to a welcome three month low. The US index hitting a new high is nothing new, but what has driven the market up is a change in the theme that has dominated this year.
AI stocks have been the most successful sector of 2025 – and remain so – but sentiment has cooled in the last 48 hours. Futures point to a poor day of trading ahead too. Instead, financials and materials have boosted market valuations overnight. This rotation has been caused by concerns that the Fed, which cut interest rates 25bps on Wednesday, is coming to the end of its cutting cycle.
Higher interest rates benefit banks, but typically are less supportive for high-growth companies, such as tech stocks. The market is picking apart the rhetoric in the FOMC announcement – and the reveal that the voting record was not unanimous. Two committee members voted to hold rates at the higher level of 3.75-4% range, and the statement from the committee said that they would have to carefully assess data, the outlook and risks before any additional adjustments. This has widely been interpreted as a pause in cuts, following three through 2025. Markets are now pricing in just one cut in 2026 and another in 2027.
Elsewhere, copper prices hit record highs, boosted by promises from the Chinese Communist Party to boost spending next year. At the annual Central Economic Work Conference held this week, Communist Party leaders promised to boost consumption and investment in 2026 in a bid to hit the GDP growth target of 5%. Commodities broadly benefitted from the Fed rate cut earlier in the week and the upgraded growth forecast for the US economy. Copper has had a strong year, up nearly 35% – though with periods of marked volatility linked to tariff concerns.
In the UK, the Office of National Statistics this morning issued growth data for October, showing that the UK economy shrank for the fourth month in a row, depressed by pre-Budget concerns. The ONS revealed that UK GDP contracted 0.1% in October – prolonging the no-growth run and fuelling concerns this will extend to two consecutive quarters, putting the UK in a technical recession. Sectors that particularly dragged included car manufacturing, as the sector struggled to rebound from the Jaguar Land Rover cyberattack and longer term headwinds including labour costs, tariffs, low demand and challenges from Asian and European manufacturers.
By Emma Wall, Chief Investment Strategist, Hargreaves Lansdown
