The Paris stock exchange is expected to open in negative territory two days ahead of the U.S. Federal Reserve's monetary policy decisions, seen as the final box to tick before closing out the year in style and beginning to look ahead to a 2026 set to be rich in new challenges.
Around 8:15 a.m., the "future" contract on the CAC 40 index--December delivery--was down 21 points at 8,101 points, signaling a slight pullback to start the week, continuing the lack of momentum that characterized recent sessions.
Reflecting greater caution among investors after a successful 2025 for equities so far, the Paris market traded within an especially narrow range last week, fluctuating between 8,040 and 8,160 points and consistently seeing limited swings from -0.1% to +0.4%.
Over the past week, the CAC posted a modest decline of about 0.1%. Still, the most optimistic analysts note that the benchmark index sits just 2.5% below its all-time high, set above 8,314.2 points on November 13.
The trend is much the same on Wall Street, where major indices posted marginal gains last week, allowing them to move back within sight of record highs, with the Nasdaq less than 2% from its peaks.
In this wait-and-see environment, investors are likely to remain on the sidelines until the conclusions of the Fed's final meeting of the year, scheduled for Wednesday evening, which is expected to result in a third rate cut this year.
Barring a major surprise, nothing seems likely to alter expectations for another 25 basis point reduction in U.S. borrowing costs, given recent signs of a slowdown in the labor market and improved control over inflation trends.
This would bring the total monetary easing by the American central bank since September 2024 to 1.75 basis points--a pace unseen in the U.S. outside of recessionary periods.
Even if largely priced in, a rate cut accompanied by dovish messaging could boost appetite for risk assets at year-end--a seasonally favorable period for equity markets--potentially paving the way for the much-anticipated "Santa Claus rally."
Some analysts believe it is not out of the question for the S&P 500 to hit the symbolic 7,000-point mark by December 31, before possibly heading toward 7,500 in early 2026--a major psychological target cited by many strategists.
Once the Fed meeting is behind them, market participants will inevitably turn their attention to 2026, a year set to be marked by the arrival of a new Fed chair, expected to be Donald Trump's longtime economic adviser, Kevin Hassett, although he has yet to be officially nominated.
Equity markets typically welcome rate cuts, but the prospect of an even more accommodating policy stance under a central bank chief known for his dovish approach could begin to unsettle some investors.
The recent flurry of rate cuts could, in fact, risk overheating the still-resilient U.S. economy, potentially forcing the Washington-based institution to hit the brakes or even reverse course and hike rates again--possibly triggering a fresh recession, some experts warn.
"We see good reasons for the Fed to start showing more caution and to slow its pace of rate cuts," forecasted Henry Alle, market analyst at Deutsche Bank, last week.
On the corporate and economic data front, the week looks much quieter, though Oracle's quarterly results, due Wednesday evening, will be closely watched.
The software maker's shares soared nearly 40% after its last earnings report, fueled by a massive cloud order backlog thanks to robust AI investment, but have since lost all those gains amid questions over the sustainability of the exceptional tech cycle that has buoyed the American sector for the past three years.
The outlook shared by the California-based group will therefore be under even greater scrutiny.
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