Fed’s Caution and Tech Results Shape Investor Outlook

Matthew Rubin Chief Investment Officer

 

1. The Federal Reserve lowered rates by a quarter point and announced an end to quantitative tightening, while signaling caution on future moves.
2. Earnings from major tech firms showed strong AI demand but renewed concerns over rising costs and future returns.
3. Treasury yields showed minimal movement last week as central bank officials emphasized patience and data dependence before any further policy moves.

 

1. Fed Delivers Expected Rate Cut and Ends Balance Sheet Reduction

The Federal Reserve wrapped up its October meeting last week by cutting the federal funds rate by 0.25 percentage points to a target range of 3.75%–4.00%.¹ The decision met market expectations and was paired with an announcement that the Fed will end its balance-sheet-reduction program, or quantitative tightening, on December 1st.¹

Recent borrowing through the Fed’s standing repurchase facility (SRF) has increased. This suggests that bank reserves have declined, causing banks to rely on the SRF to keep short-term funding markets operating smoothly. These reserves, which are bank deposits held at the Fed, remain a key source of stability in the financial system.

The Fed issued a statement that described moderate U.S. economic growth, slower job gains, and a modest uptick in unemployment.¹ Chair Powell noted that views differed among policymakers about another potential rate cut in December. Following his remarks, 10-year Treasury yields rose to about 4.07% as markets lowered the odds of a follow-up cut.² Overall, this week’s easing reflects a prudent step to support the labor market as growth slows.

2. Mixed Signals from Mega-Cap Tech as AI Spending Rises

Last week’s earnings from three members of the “Magnificent 7,” Alphabet, Microsoft, and Meta, painted a mixed picture for large-cap technology stocks. Alphabet led the group, reporting strong results that lifted its shares more than 7%.³ Microsoft posted solid growth as well, supported by expanding AI-related services and a rising customer backlog.³ Meta, however, disappointed investors, with shares falling about 10% following a one-time cash charge and plans to increase 2026 spending well above 2025 levels.³

While enthusiasm for artificial intelligence remains high, markets appear less forgiving of cost overruns and lofty projections. With the group already up roughly 25% this year, investors are weighing whether these heavy AI investments will yield sufficient long-term returns.³ Still, the reported backlog growth at both Alphabet and Microsoft suggests that demand for AI capabilities remains durable, even as the market adjusts to slower, more selective momentum.³

3. Treasury Yields Hold Firm as Markets Await Clearer Economic Signals

The 10-year Treasury yield ended last week near 4.08%, little changed after briefly touching 4.10% earlier in the day.⁴ The 2-year yield slipped to about 3.59%, while the 30-year yield held around 4.65%.⁴ The steadiness in yields followed cautious comments from several Federal Reserve officials, which tempered expectations for additional rate cuts this year.

Kansas City Fed President Jeffrey Schmid and Dallas Fed President Lorie Logan both expressed concern that financial conditions remain too loose to justify further easing, noting ongoing strength in equity and credit markets.⁴ Their remarks suggested that any future policy changes will depend on clearer signs of cooling inflation and slower job growth.

With the government shutdown now entering its fifth week and limiting the flow of key data, investors turned to regional indicators for direction. The October Chicago Purchasing Managers’ Index rose to 43.8, better than expected, offering a modest signal that business activity remains resilient despite broader uncertainty.⁴

For the period ending 10/31/25.
* Small-cap stocks are represented by the Russell 2000^® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ U.S. Federal Reserve
² CME FedWatch
³ Bloomberg
⁴ CNBC

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Comparative Index Descriptions: The Standard & Poor’s (S&P) 500 Index, The Russell 200^® Index, The NASDAQ Composite Index, The MSCI EAFE Index, Dow Jones Industrial Average^® (Dow Jones or DJIA), The Bloomberg Barclays US Aggregate Bond Index (US Agg Bond), The CBOE Volatility Index (VIX). CSP2025061_33