The Federal Reserve could ignite something big in stocks when it inevitably lowers its benchmark lending rate later in the day, but not something that could be great long term for the market and economy. Longtime market watcher Ed Yardeni likened the Fed’s all-but-certain rate reduction to “throwing gasoline on a fire” in a note to clients Tuesday, the same day the S & P 500 touched a fresh all-time high. And while the labor market has shown signs of slowing, overall U.S. economic growth remains solid. “[Wednesday’s] rate cut isn’t really needed,” Yardeni said. “More often than not in the past, monetary easing cycles started when the previous tightening of monetary policy triggered a financial crisis that quickly turned into an economy-wide credit crunch and a recession.” “But the Fed cut the [fed funds rate] by 100bps at the end of last year even though there was no credit crunch and no recession,” he said. “That makes another round of rate cuts in this cycle more likely to cause inflation to remain above the Fed’s target, while fueling speculative fires in the stock market.” So the market could take off in the short term, but longer term will we have to pay the piper for letting inflation and speculative excess loose again? .SPX YTD mountain SPX year to date The S & P 500 is up 12.3% in 2025, with traders piling into some of the more speculative names on the Street. Paramount Skydance , for instance, is up 67% year to date, while Palantir Technologies has soared 125% in the same time. And history shows the stock market does well when the Fed lowers rates when the benchmark S & P 500 is less than 1% from its all-time high. Check out Tuesday’s Playbook for the full stats. But some on Wall Street Wednesday fear that a rate cut could lead to some downside pressure, if not today then in the near future. “Many feel there will be a ‘sell the news’ response to this outcome since the narrative has already swung aggressively toward the dovish end of the spectrum,” wrote Adam Crisafulli of Vital Knowledge. JPMorgan’s trading desk on Wednesday echoed Crisafulli, noting: “As we look toward month-end, Fed Day may act as a ‘sell-the-news’ event as investors take time to consider the macro environment, the Fed future reaction function, potentially stretched positioning, a temporarily weaker corporate buyback bid, waning Retail investor participation, and quarter-end rebalancing.” The bank’s traders recommended buying megacap tech stocks in the event of a pullback, along with utilities and health care sectors. ( Learn the best 2026 strategies from inside the NYSE with Josh Brown and others at CNBC PRO Live. Tickets and info here . )
