Wall Street Lunch: Rate Cut Hopes Crumble

Wall Street Breakfast5.74M FollowersSubscribe5ShareSaveComment(1)SummaryMarkets have sharply repriced rate expectations, now seeing little chance of Fed cuts in 2026 and even pricing in potential hikes from the BoE.Alibaba (BABA) posted significant Q4 revenue and profit misses, with net income down 67% year-over-year amid heavy AI investment and lagging cloud growth.Five Below (FIVE) outperformed with Q4 sales up 24.5% and comps rising 15.3%, while Alcoa (AA) slumped as aluminum prices dropped despite strong global demand.BofA highlights Super Micro Computer (SMCI), Realty Income (O), Hasbro (HAS), and Kinder Morgan (KMI) as the most underweight stocks by hedge funds in their sectors. Tanarch/iStock via Getty Images Listen below or on the go on Apple Podcasts and Spotify BoE hawkish turn wipes out market hopes for Fed cuts. (0:16) Alibaba posts wide quarterly misses as AI spending pressures profits. (1:47) Oscars audience falls, while global music revenue keeps rising. (2:46) This is an abridged transcript of the podcast: Out top story so far, to paraphrase Kaiser Soze: just like that, it’s gone. Markets now see little chance the Federal Reserve cuts rate this year. Just a month ago, about 50 basis points of easing were priced in. Fed funds futures now imply nearly an 80% chance that rates will end 2026 where they are today — and a 5% probability they could even be higher — as global central banks picked up the hawkish baton from Wednesday’s FOMC meeting and ran with it. “Take one hawkish-leaning FOMC presser, mix in a hawkish hold from the BoJ, sprinkle on top a BoE 9-0 hold vote — and what do you get? A mess,” said Guy LeBas, strategist at Janney. The Bank of England especially rattled the cage, signaling potential rate hikes to combat energy spikes. Not long ago, two rate cuts were expected this year. Now roughly 60 basis points of hikes are priced in. Near-term gilt yields surged to 52-week highs. In the U.S., the 2-year Treasury yield (US2Y) topped 3.85%, levels not seen since July. Michael Brown of Pepperstone warned the BoE’s tone “implies that the MPC may be on the verge of making a horrific policy mistake.” He argued the economy is in a very different place than during the last energy shock, with a more fragile labor market and lower risk of persistent price pressures. Markets found some relief when the ECB, which also held rates, sounded less alarmed — though it left the door open to a potential April hike. The ECB “obviously looked at the BoE statement today and thought ‘OK, let’s not do anything THAT crazy,” economist Dario Perkins said. Among active stocks, Alibaba (BABA) reported wide fourth-quarter misses on both revenue and profit, raising fresh questions about whether its heavy AI investments are paying off. Seeking Alpha analyst Geneva Investor noted that “AI investments come at the detriment of net income,” which fell 67% year-over-year. The analyst added that cloud revenue growth of 36% year-over-year may not be enough when Microsoft’s Azure is expanding at 39% from a much larger base. Five Below (FIVE) is rallying after fourth-quarter sales jumped 24.5% from a year ago. Comparable sales rose 15.3%, easily topping the 13.7% consensus estimate. And Alcoa (AA) is tumbling after aluminum futures on the London Metal Exchange posted their biggest drop since 2018, erasing a portion of the recent war premium. Analysts at ANZ said that while buyers across Asia, Europe and the U.S. are scrambling to secure supply, stockpiles in China continue to build — tempering some of the bullish price pressure. In other news of notes, let’s lighten things up a little with some entertainment headline. The 98th Academy Awards drew 17.86M viewers across ABC and Hulu (DIS), the lowest total since 2022. Nielsen data showed viewership fell more than 9% from last year, snapping a multi-year recovery. After hitting an all-time low of 10.4M in 2021 during the pandemic, the Oscars rebounded for three straight years, peaking at 19.7M in 2025. Digital engagement, however, remained strong. ABC reported a 42% jump in social impressions to more than 184M. And in more encouraging news for the industry, global recorded music revenue rose 6.4% to $31.7B in 2025, driven by growth in paid subscriptions. The nostalgically named International Federation of the Phonographic Industry said revenue from paid streaming platforms climbed 8.8% and now accounts for more than half of global industry revenue. Latin America led regional growth, up 17% from 2024. And in the Wall Street Research Corner, we turn to neglected stocks. BofA Securities has tallied the names where hedge funds are most broadly underweight in each sector. They include Super Micro Computer (SMCI) in Info Tech; Realty Income (O) in Real Estate; Hasbro (HAS) in Consumer Discretionary; and Kinder Morgan (KMI) in Energy. Check out the full list here.Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.This article was written byWall Street Breakfast5.74M FollowersSubscribeWall Street Breakfast, Seeking Alpha's flagship daily business newsletter, is a one-page summary that gives you a rapid overview of the day's key financial news. It is designed for easy readability on the site or by email (including mobile devices) and is published before 7:30 AM ET every market day.

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