Views on Equity strategy: Markets whipsaw on Fed and Oracle by Mathieu Racheter, Head of Equity Strategy Research, Julius Baer
Below the Views on Equity strategy: Markets whipsaw on Fed and Oracle by Mathieu Racheter, Head of Equity Strategy Research, Julius Baer
The Fed’s rate cut lifted equities intraday, with the S&P 500 up 0.7%, before Oracle’s results, which failed to beat expectations, reversed sentiment, and pushed futures lower. Despite the volatility, earnings growth is broadening beyond the US, and a more accommodative Fed has historically supported equities even at elevated valuations. This makes international diversification increasingly important as regional earnings momentum improves. With year-end seasonality also favourable, the broader backdrop into early 2026 remains constructive.
Equity markets initially moved higher after the Fed delivered a 25bps rate cut, bringing the policy range to 3.5%–3.75%. The S&P 500 gained around 0.7% intraday as Chair Powell acknowledged softer labour-market momentum and continued progress on inflation, pushing yields modestly lower. Still, the wide range of views inside the committee made it clear that future cuts remain data-dependent rather than pre-committed. Momentum faded after the close when Oracle failed to beat expectations for its cloud business revenue, a sensitive segment given its link to artificial intelligence (AI) infrastructure spending. The stock dropped more than 10% in extended trading, pulling S&P 500 futures down roughly 0.8% and Nasdaq 100 futures down more than 1.5%, with Asian technology markets following lower. The reaction highlighted just how quickly sentiment can shift when AI-linked earnings disappoint. Beyond the immediate volatility, the broader backdrop remains constructive. Earnings growth is broadening out across regions, not just within US mega-cap technology, and historically, this kind of expansion, combined with a more accommodative Fed, has supported equity returns even when valuations start from elevated levels. Against this backdrop, diversifying into international markets, where earnings growth is turning positive again after flattish growth in 2025 and valuations remain more reasonable, offers a more balanced way to position for next year. Tactically, seasonality also helps: the final two weeks of December have historically been the strongest of the year, averaging gains of 1.4% with a roughly 75% hit rate.
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