The Rate Cut Mirage – How Resilient Stocks Made Wall Street Forget About Jerome Powell

These days, when Jerome Powell speaks, a certain kind of silence descends upon a trading floor. Not the reverent silence of the past, when each word seemed to be scripture. Something thinner. more formal. After listening and nodding, traders resume their purchases. It’s difficult to avoid feeling that something has changed in the relationship between the Fed and the people who are meant to pay close attention to everything it says while watching this develop from London.

A portion of the story is revealed by the numbers. This week, the S&P 500 closed close to 7,108, a level that would have seemed ridiculous eighteen months ago. After witnessing the index surpass his 6,600 year-end target, Citi’s Scott Chronert politely referred to stocks as “fairly valued,” which, in strategist parlance, indicates that he is also unsure of the situation. In recent weeks, Wells Fargo, Barclays, and Deutsche Bank have all raised their goals, citing the AI cycle and what they refer to as resilient earnings. In 2025, the term “resilient” has done a lot of heavy lifting.

Interestingly, traders are now viewing Powell’s cautious remarks as noise rather than a signal. He cautioned back in September that asset prices appeared “fairly highly valued.” For roughly an afternoon, the market was erratic. After that, it ascended. The same pattern recurred in late October when he rebuffed expectations of a December rate cut. The sentiment was succinctly expressed by Thomas Hayes of Great Hill Capital, who pointed out that every dip had to be bought because managers who sold in April were still lagging behind their benchmarks. That isn’t a conviction. That is desperation disguised as tactics.

In a sense, the July episode was even more bizarre. Markets plummeted after reports that Trump might fire Powell surfaced, but by the end, stocks had recovered after Trump dismissed the whole situation. That same week, the Nasdaq set a record for the fifth time in six sessions. Investors may have simply concluded that the political drama surrounding the Fed had become too commonplace to be priced in. Alternatively, they may no longer think that anyone—including the president—can significantly undermine the current tape.

This has some cultural resonances that are worth mentioning. The markets have previously strayed from the Fed’s gravitational pull. Greenspan issued a warning about irrational exuberance in the late 1990s, but it was disregarded for years. According to Keith Lerner of Truist, the index has increased 90% of the time over the next year when the Fed lowers interest rates while the S&P is within 3% of all-time highs. If you’re long, that’s a reassuring statistic. Remembering that the other 10% is typically memorable for the wrong reasons makes it less consoling.

Beneath the optimism, little details continue to emerge that add complexity to the situation. A downgrade by Morgan Stanley caused Adobe to drop 3%. Despite reporting higher profits, Bank of America and Morgan Stanley both saw declines. Reports that the Trump administration desired an equity stake caused Lithium Americas to soar by almost 90%. This strange, interventionist move would have rocked markets in any other era. No one blinked.

Watching the tickers flicker green every day gives the impression that Wall Street and the Federal Reserve have secretly renegotiated their relationship. Earnings are more important. More important is guidance. AI capital expenditures are very important. Powell is still important, of course, but in the same way that a referee is important in a game where the outcome is determined by the crowd. No one, not even the strategists cashing the bull-case checks, can honestly say whether that’s a sign of true market maturity or the kind of confidence that precedes a reckoning.