The Nasdaq 100 is hitting record highs, nearing 26,000, as investors expect the Federal Reserve to cut rates. The CME FedWatch Tool shows a 96.7% chance of a 25 basis points rate cut at the next FOMC meeting, which would lower the rate from 4.25% to 4.00%. Despite the U.S. government shutdown, the Nasdaq’s rise signals a strong risk-on sentiment. Market participants are looking past fiscal challenges, focusing instead on monetary policy, tech strength, and overall liquidity.

Impact of Potential Rate Cut

The anticipated Fed rate cut is boosting the Nasdaq by lowering borrowing costs and encouraging investments in tech stocks. As expectations for liquidity grow, valuations increase, causing noticeable movements in the market. The government shutdown has unexpectedly slowed down Treasury issuance, which means fewer bonds are available and less pressure on yields. With economic data release delays, this environment supports riskier assets like stocks, especially in tech and AI. As the market has already factored in potential rate cuts, Fed Chair Powell’s comments will be crucial. A supportive message could keep the rally going, while a cautious one might lead to profit-taking. Upcoming GDP data could also impact market feelings. With the Nasdaq 100 nearing 26,000 after nine consecutive positive days, caution is warranted when considering new long positions. The market has largely priced in the expected rate cut on October 30, creating a risk of “buy the rumor, sell the news.” A smarter move would be to manage existing profitable positions and hold off on new risks before the Fed’s announcement.

Market Reactions and Strategies

The main event will be Powell’s messaging rather than the cut itself, which is likely to cause significant volatility. Implied volatility in Nasdaq options has increased, making direct long calls or puts expensive. A more effective strategy could be to use spreads to manage risk, or for seasoned traders, to sell premium to take advantage of the anticipated drop in volatility after the announcement. If Powell’s comments are dovish, suggesting more cuts may come, any dip during the day could present a buying opportunity. This scenario would support the bull case, likely driving the index toward the 26,250 target. A similar situation occurred in summer 2019, where the Fed’s first “pre-emptive” rate cut sparked a strong multi-month tech rally. On the other hand, if Powell describes the cut as a one-time “technical adjustment,” the market may interpret this as hawkish, prompting quick profit-taking. In that case, using short-term put options or shorting futures targeting the 25,700 support level would be sensible. This would be a tactical choice, as the general trend of monetary easing is only beginning. It’s important to note that this rally has primarily benefited a few major tech companies, reminiscent of market patterns seen during the 2023-2024 AI boom. The Nasdaq 100 is up over 35% year-to-date in 2025, with the top ten companies making up more than half of that gain. This concentration makes the index susceptible to rapid pullbacks if sentiment swings. Even if there’s a short-term decline due to a hawkish tone, we need to remember that the Fed has started an easing cycle. History shows that after the first rate cut, growth assets often benefit over the next six to twelve months. Any significant drops in the coming weeks should be viewed as a strong buying opportunity for the long-term outlook toward 2026. Create your live VT Markets account and start trading now.

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