Weekly wrap
Week:
S&P500: -0.7% FTSE100: +0.1% Gold: +3.9% Bitcoin: -2.4%
YTD:
S&P500: +16.3% FTSE100: +17.5% Gold: +65.8% Bitcoin: -3.9%
Fed Cuts Rates, but AI-Led Rally Falters Late in the Week
Source: Connect Weekly | Week ending 13 December 2025
US equities ended the week lower despite a long-telegraphed rate cut from the Federal Reserve. While the S&P 500 briefly touched a new all-time high on Thursday, a sharp late-week selloff in AI-linked stocks dragged major indices into the red. The Russell 2000 continued to outperform earlier in the week as easing optimism lifted small caps, but tech ultimately dictated direction.
What drove markets this week
Monday opened with caution as investors de-risked ahead of the Fed and awaited clarity on the path for rates in 2026. Bitcoin slipped, speculative assets wobbled, and only tech finished higher. M&A and deal activity provided isolated upside, but the tone remained defensive.
Tuesday saw markets tread water. Small caps pushed to a fresh intraday high as traders leaned into the expected rate cut, while megacap tech was mixed. Delayed labour data showed job openings running hotter than expected, reinforcing uncertainty around how aggressive the Fed can be beyond December.
Fed cuts, but signals patience
On Wednesday, the Fed cut rates by 25bp to 3.5–3.75%, as expected. Stocks initially rallied and the Russell 2000 closed at a new all-time high. However, Powell’s messaging was deliberately cautious, stressing that further cuts would depend on incoming data rather than a preset path. Markets took the cut but began to question how much easing is really coming in 2026.
AI optimism fades
Thursday delivered a split tape. The S&P 500 and Russell 2000 closed at record highs, but the Nasdaq 100 fell as Oracle’s results reignited concerns around AI infrastructure demand, capital intensity, and timelines. The selloff rippled through chips, servers, data-centre operators, and AI-adjacent names, even as defensives and healthcare found support.
Friday: AI selloff pulls markets lower
Those concerns accelerated into Friday. Broadcom earnings disappointment and reports that Oracle may delay some OpenAI-related data-centre projects weighed heavily on the entire AI ecosystem. Tech was the worst-performing sector, dragging the Nasdaq sharply lower. The S&P 500 gave back its fresh highs to finish the week in the red, while confidence in near-term AI monetisation visibly cooled.
Looking ahead
With the Fed now on hold and markets reassessing the durability of the AI trade, attention shifts to whether earnings can re-anchor expectations. Small caps have benefitted from easing hopes, but leadership remains fragile. As the year closes, markets appear increasingly selective, rewarding cash flow and visibility, while punishing long-duration AI narratives that fail to deliver near-term certainty.
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