Fed provides a more conservative outlook than expected

General market commentary

Equity markets ended modestly lower on Wednesday following the Federal Reserve’s decision to cut the federal funds rate by 25 basis points, in line with expectations. The Dow Jones Industrial Average gained more than half a percent, while the S&P 500 slipped 0.1% and the Nasdaq Composite fell 0.3%. Interest rate-sensitive small-cap shares outperformed mid- and large-cap equities, while financials and consumer staples posted the strongest gains. Technology and industrials lagged behind. Elsewhere, European equities were mixed, led higher by technology shares as major U.S. firms announced new investment in the U.K. during President Trump’s visit. Meanwhile, the U.S. dollar strengthened against major currencies, and oil prices slipped after recent supply-driven gains tied to Ukrainian drone strikes on Russian energy infrastructure.

Bond yields edged higher, with the 10-year U.S. Treasury yield at 4.07%, though overall yields remain in a downward trend that has supported strong fixed-income returns this year. The Fed’s updated projections pointed to the likelihood of another rate cut before year-end, alongside expectations of stronger growth, lower unemployment, and slightly higher inflation. U.S. shares finished mixed: the Dow rose over half a percent, supported by financials such as American Express and Goldman Sachs, while the S&P 500 dipped 0.1% and the Nasdaq lost 0.3%. Corporate movers included Lyft, which surged more than 13% after announcing a tie-up with Waymo, while rival Uber fell 5%. Workday jumped over 7% on news of a $2 billion stake taken by activist investor Elliott Management.

Latest market and economic update

Most Asian equities advanced on Thursday after the U.S. Federal Reserve cut rates and signalled further easing. Japan’s Nikkei hit a record high, while South Korea’s KOSPI also climbed. Chinese shares reached decade highs, though Hong Kong stalled. Australia and New Zealand lagged, with weak labour and GDP data fuelling expectations of further rate cuts.

US equity futures rose modestly overnight, with S&P 500 and Nasdaq 100 futures up 0.2% and Dow futures climbing 0.1%, as investors assessed the Fed’s 25bps rate cut. Fed Chair Powell signalled gradual easing, dampening expectations of aggressive cuts. Despite Wednesday losses, all three indices are on track for weekly gains.

European equities closed mostly flat on Wednesday, with the STOXX 50 marginally lower and the STOXX 600 little changed, as investors awaited the US Federal Reserve’s rate decision. UK inflation held steady at 3.8% in August. Market movers included PostNL, up more than 1.5% on a business split, and Novo Nordisk, rising 1.6% after an upgrade.

The U.S. dollar index hovered above 97 on Thursday, extending gains after the Federal Reserve’s rate cut and cautious policy guidance. Investors scaled back expectations for aggressive easing, lending support to the greenback. Against the euro, the dollar held firm, with EUR/USD trading at 1.1816, reflecting dollar strength as markets reassessed interest rate differentials.

Oil prices fell in Asian trade this morning, with Brent down 0.5% to $67.62 and WTI off 0.5% to $63.37, after earlier gains from US-Russia tensions and a softer dollar. Markets digested a Fed 25bps rate cut, mixed US inventory data, and a firmer dollar, while concerns over slowing demand and a potential supply glut kept prices under pressure.

The Federal Reserve cut the federal funds rate by 25bps to 4.00%–4.25%, marking its first reduction since December, with Governor Stephen Miran dissenting for a 50bps cut. The Fed projected another 50bps cut this year and 25bps in 2026, revised GDP growth and inflation higher, and slightly lowered next year’s unemployment forecast to 4.4%.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Meta Platforms launched its first consumer-ready smart glasses with a built-in display, the Meta Ray-Ban Display, priced at $799 and available from 30 September, along with a wristband controller. The company also unveiled Oakley Vanguard glasses for athletes and updated its Ray-Ban line. Analysts see the launch as a step toward Meta’s 2027 “Orion” glasses.

Apple is reportedly discussing test production of foldable iPhones with suppliers in Taiwan, aiming for mass production in India and a 2026 release. The foldable devices could boost total iPhone shipments by 10% next year. The move represents Apple’s first foray into the foldable smartphone market, where several competitors already have established products.

Lyft shares surged more than 13% after announcing a partnership with Waymo to launch autonomous ride-hailing in Nashville in 2026. Lyft’s Flexdrive will manage Waymo’s fleet, initially via the Waymo app, later expanding to Lyft’s network. The deal includes a dedicated fleet facility and aims to integrate autonomous vehicles alongside Lyft’s driver community.

PayPal shares rose over 2% after announcing a multiyear partnership with Google to integrate payments across its ecosystem and leverage AI for shopping experiences, while setting standards for agentic commerce. The collaboration will also expand PayPal’s use of Google Cloud for next-generation payments infrastructure and global digital commerce innovation.

Puma shares surged over 11% after reports that Authentic Brands CEO Jamie Salter and CVC’s German head Alex Dibelius are preparing a takeover bid for the Pinault family’s 29% stake. However, the family’s holding company Artemis denied any active sales process. Puma has halved in value this year, but remains the STOXX 600’s top gainer.

Eli Lilly’s experimental weight-loss pill, orforglipron, showed superior blood sugar and weight reduction compared with Novo Nordisk’s Rybelsus in trials, boosting confidence in Lilly’s GLP-1 market lead. Shares rose modestly. The company plans to file for US, UK, EU, Japan and China approvals this year, with peak annual sales forecast up to $10 billion.

Kering has appointed Francesca Bellettini as Gucci CEO, replacing Stefano Cantino after nine months, as part of a wider restructuring led by new group chief Luca de Meo. Bellettini, previously deputy CEO, will streamline management and address declining sales, which fell 25% last quarter. Georgian designer Demna will debut his first Gucci collection next spring.

UBS upgraded Inditex to Buy, raising its 12-month price target to €52, citing renewed sales momentum, strong margins, and long-term growth. Analysts highlighted robust autumn/winter sales, a 9% EPS CAGR to 2029, expanding free cash flow, rising dividends, and opportunities in the US and online, positioning Inditex as a leading European fashion retailer.

Redburn upgraded EssilorLuxottica to Buy with a €320 price target, citing its market leadership in vision care and expansion into myopia management, audiology, and smart glasses. While new ventures may temporarily affect margins, analysts expect strong growth, projecting 14.8% EPS CAGR to 2028 and operating margins reaching 20% by 2030, justifying a premium valuation.

Evercore ISI downgraded FedEx to In Line from Outperform and cut its price target to $243, citing weakening demand trends and softer August industrial production and retail sales. FY26 EPS forecasts were lowered to $17.99, reflecting macro headwinds and volume challenges, while cost efficiencies from restructuring are expected to be insufficient to offset near-term pressures.

Upcoming data and events

Today’s key economic releases include the Philadelphia Fed Manufacturing Index and Initial Jobless Claims, providing insights into regional manufacturing and labour market conditions. Earnings reports are also in focus, with major companies such as FedEx, Lennar, and Darden Restaurants set to release their financial results, alongside several other notable firms.

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