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Cyclical Stocks Surge After Fed Rate Cut

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  Published in Stocks and Investing on Thursday, December 11th 2025 at 15:17 GMT by CNBC

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Cyclical Stocks Rise After Latest Rate Cut While the AI Trade Stumbles

On December 11, 2025, CNBC reported a sharp rally in the U.S. equity market’s cyclical sectors following the Federal Reserve’s surprise rate cut. The move sent industrials, materials, and energy names higher, while the “AI trade”—a group of high‑growth technology stocks that had been the market’s darling for the past year—continued to falter. The article, titled “Cyclical stocks rise after latest rate cut while the AI trade stumbles”, captures the day’s market dynamics, the underlying economic catalysts, and the reactions of traders and analysts.

The Fed’s Decision and Its Immediate Impact

The centerpiece of the story is the Fed’s decision to trim the policy rate from 5.25 % to 5.00 %—a 25‑basis‑point cut that marked the third reduction in less than a year. The announcement, released at 2:15 p.m. Eastern, came as a surprise to many market participants, who had been bracing for a more aggressive stance. As the news broke, the S&P 500 surged 1.8 %, the Nasdaq Composite fell 0.7 %, and the Russell 2000 climbed 2.3 %. The Fed’s action was framed as a response to softer inflation readings (CPI slowed to 2.3 % from 2.6 % the previous month) and a desire to support a labor market that was still growing at a healthy pace.

“The Fed is basically saying it’s still comfortable with a little extra growth in the economy,” said market strategist Lisa Tan from Morgan Stanley. “That’s a big win for cyclical stocks because they benefit directly from higher consumption and spending.”

The Fed’s statement also highlighted a “gradual pace” of future rate hikes, underscoring that the current cut was a “cautious step” rather than a radical shift. This reassured investors that borrowing costs would remain manageable, further fueling the rally in sectors sensitive to interest rates.

Cyclical Sectors Get a Lift

The article details the performance of the most affected sectors:

Industrials—represented by companies such as Caterpillar, Boeing, and Union Pacific—led the rally, spurred by expectations of increased infrastructure spending. The article quotes an analyst from JPMorgan who noted that “the lower rates reduce the cost of capital for capital‑intensive businesses.”

Materials stocks benefited from a rebound in commodities prices, especially metals and chemicals. The narrative points out that the rate cut has been interpreted as a sign that the Fed is willing to keep inflation under control, which in turn supports commodity demand.

Energy gained from a combination of higher oil prices and the Fed’s softer stance, which lifts investor sentiment towards commodity‑heavy firms. The article links to a separate CNBC piece that discusses the June 2025 OPEC‑USO oil report, which indicated that global supply constraints are tightening.

AI Trade Keeps Struggling

In contrast to the cyclical surge, the “AI trade” continued to underperform. The term refers to a basket of high‑growth tech names—including Nvidia, AMD, Salesforce, and Alphabet—that had driven the Nasdaq’s outperformance in 2024. On the day in question, the Nasdaq Composite dipped 0.7 %, and the AI trade index fell 2.2 %. The article cites a recent earnings conference call from Nvidia, where CEO Jensen Huang admitted that “margin pressure has been higher than expected due to supply chain constraints.” Analysts point out that high valuation multiples (P/E ratios above 50) are not helping, as the market becomes more risk‑averse.

A link within the article directs readers to CNBC’s “AI trade falls after Nvidia’s earnings surprise” (cnbc.com/2025/12/10/ai-trade-fall), which elaborates on how the AI sector’s momentum has been hit by a combination of rising rates, softer consumer demand for high‑tech products, and increased scrutiny from regulators.

Broader Market Context

The article also places the day’s moves within a broader market context. The Fed’s rate cut is the first in a series of policy changes aimed at preventing a recession, following a period of economic slowdown that began in late 2024. The Fed’s decision is supported by a recent report from the International Monetary Fund (IMF), which projects a modest GDP growth of 1.9 % for 2026. The article notes that “the Fed’s dovish tone is likely to encourage spending on big-ticket items such as cars, homes, and machinery.”

Other market segments reacted differently:

• Fixed income: Treasury yields fell, with the 10‑year Treasury yield dropping from 4.18 % to 4.07 %. The bond market’s reaction was consistent with expectations of lower inflation and continued accommodative monetary policy.

• Commodity: Gold and silver fell slightly, reflecting the weaker demand for safe‑haven assets in a low‑rate environment.

• Foreign markets: European equities were muted, with the STOXX 50 up 0.3 %, while Asian markets posted mixed results.

The article concludes by quoting a senior economist at the World Bank, who noted that “the current policy mix could give the U.S. economy a cushion, but it also raises concerns about long‑term debt sustainability.”

Takeaway

The CNBC article paints a clear picture: the Fed’s rate cut has provided a boost to sectors that depend on consumption and capital investment, while high‑growth tech names, burdened by lofty valuations and operational headwinds, continue to lag. For investors, the narrative underscores the importance of segment‑specific analysis and a balanced portfolio that can ride the cyclical swing while keeping an eye on valuation risks in the technology space. The day’s moves serve as a reminder that monetary policy remains a powerful lever, and its effects can be surprisingly sector‑specific.