Markets Rally as FOMC Meeting Week Approaches: When Is the Next Federal Policy Decision?

Equity markets ended the week on a positive note with the S&P 500, Dow Jones, and Nasdaq 100 all posting modest gains. This upward movement comes as investors brace for a significant week ahead when the next FOMC meeting will determine the Federal Reserve’s policy stance. With earnings season in full swing and major economic data releases supporting the narrative of a resilient US economy, market participants are closely watching the calendar for when the Federal Reserve will convene to make its next rate decision.

Economic Resilience Provides Market Lift Ahead of FOMC Meeting

The rally found support from stronger-than-expected economic data, particularly November’s durable goods orders, which jumped 5.3% month-over-month against expectations of 4.0% growth. This performance represented a significant rebound from October’s revised decline of 2.1%. Durables ex-transportation climbed 0.5% against forecasts of 0.3%, while capital goods orders excluding defense and aircraft rose 0.7% versus expectations of 0.3%.

Regional Federal Reserve data also painted a picture of economic stability. The Chicago Fed’s November National Activity Index posted a decline of only 0.04 points, beating expectations for a 0.20-point drop. Meanwhile, the Dallas Fed’s January manufacturing index fell 1.2 points, considerably less severe than anticipated drops of 8.5 points. These data points are particularly relevant as investors await the next FOMC meeting, where policymakers will assess whether the economy can sustain its current trajectory without additional monetary support.

Political and Trade Uncertainty Clouds Market Sentiment

However, the week’s gains were tempered by growing concerns over trade policy. President Trump’s renewed threat of imposing 100% tariffs on Canadian imports should Canada pursue trade agreements with China has created fresh uncertainty about the direction of US trade relations. This protectionist stance is pushing Canada to seek alternative trade partnerships, a dynamic that reflects broader anxiety about tariff escalation.

Government funding concerns also weighed on investor sentiment, as Senate Democrats indicated they might block a funding deal over Department of Homeland Security financing following weekend events. The possibility of a partial government shutdown looms if lawmakers fail to reach an agreement before current stopgap measures expire.

Adding to the mix of policy uncertainty is speculation around potential US dollar intervention. Reports suggest American authorities contacted market participants to check dollar-yen exchange rates, hinting at a possible coordination with Japan to strengthen the yen. Meanwhile, the dollar index declined 0.7% to reach a four-month low, reflecting both intervention speculation and concerns about the economic impact of aggressive tariff proposals.

FOMC Meeting Signals Policy Stability as Markets Debate Rate Cuts

Looking ahead to when the next FOMC meeting will convene, market pricing indicates minimal probability—just 3%—that the Federal Reserve will cut rates by 25 basis points. This suggests consensus expectations for the Fed to maintain current policy rates, a stance that could draw fresh criticism from political quarters if the economy shows signs of weakness.

The dollar’s weakness and broader policy uncertainty are proving beneficial for precious metals, which have reached new record highs. This flight to safety is lifting mining stocks significantly, with producers gaining substantial ground as investors hedge against currency and political risks.

Fixed Income Markets Reflect Fed Policy Expectations

Treasury prices found support from equity market volatility and declining inflation expectations. The 10-year T-note yield dropped 1.4 basis points to 4.211%, while inflation expectations embedded in the 10-year note fell 0.2 basis points to 2.311%. Despite the stronger-than-expected durable goods report, longer-term yields retreated as investors positioned for the upcoming FOMC meeting and its potential implications for future rate paths.

European fixed income markets also reflected risk-aversion dynamics. The German 10-year bund yield declined 3.9 basis points to 2.868%, while the UK 10-year gilt yield fell 2.1 basis points to 4.491%. Market swaps indicate virtually zero probability of a European Central Bank rate hike at its early February meeting.

Technology Stocks and Rare Earth Suppliers Lead Market Gainers

The Magnificent Seven technology stocks dominated performance, with Apple, Microsoft, Meta, and Alphabet each posting gains exceeding 1%. Tesla, however, bucked the trend with losses exceeding 2%, suggesting divergence even within the mega-cap technology cohort.

Mining and rare earth stocks emerged as the week’s strongest performers. Gold and silver producers including Anglogold Ashanti, Hecla Mining, and Coeur Mining surged 5%, 3%, and 2% respectively as precious metals reached fresh peaks. USA Rare Earth Inc jumped more than 10% following reports that the US government will acquire a stake in the company to secure domestic access to critical minerals and rare earth elements. This development rippled through the sector, lifting peers including Niocorp Developments and Critical Minerals Corp.

Semiconductor-adjacent names also attracted capital, with CoreWeave gaining more than 8% following an additional $2 billion Nvidia investment. Application software firms moved higher on analyst upgrades, with Cisco Systems gaining 3% after Evercore ISI upgraded its rating, while Cognizant Technology climbed 1% on Deutsche Bank’s positive reassessment.

Conversely, Revolution Medicines tumbled more than 16% after Wall Street Journal reporting revealed that Merck had terminated acquisition discussions with the biopharmaceutical company, illustrating how deal risk can quickly reverse sentiment.

Earnings Season in Full Flow as Market Tests Conviction

With 102 of the S&P 500’s constituents scheduled to report earnings this week, Q4 reporting season has reached its peak. The earnings calendar provides crucial context for when investors will be watching the FOMC meeting outcomes, as policy direction directly impacts earnings valuations and financing costs for corporations.

So far, earnings have vindicated market enthusiasm, with 78% of the 64 reporting companies beating expectations. Bloomberg Intelligence estimates that S&P 500 earnings will expand 8.4% in the quarter. Excluding the Magnificent Seven mega-cap technology stocks, earnings growth is projected at 4.6%, demonstrating that profit expansion extends beyond just the tech elite.

International markets presented mixed signals as the week progressed. Europe’s Euro Stoxx 50 edged 0.22% higher, while China’s Shanghai Composite finished essentially flat at -0.09%. Japan’s Nikkei Stock 225 declined 1.79%, reflecting divergent economic narratives and growth expectations across major economies.

As investors navigate the question of when the next FOMC meeting will occur and what policy adjustments might follow, the combination of solid earnings results, resilient economic data, and policy uncertainty will likely keep markets focused on the policy calendar and the Fed’s assessment of economic conditions.