Fed clarity fuels a market rotation — Tech rests, the troops advance

“The balance of risk has shifted. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate”. JJ December 10, 2025.

Yesterday morning I told you it was going to be all about what JJ said – and that is exactly how it played out. Yes, they delivered the widely anticipated 25 bps cut, taking Fed Funds to 3.50%–3.75%, but that was the non-event. No suspense, no drama — no one at the Fed was playing “I’ve Got a Secret.” We all knew the cut was coming. The real show was the messaging. And in my opinion, JJ played it beautifully.

He described the discussions behind the iron curtain as “thoughtful and respectful,” and revealed that the decision was broadly supported, with only three dissenters — two who wanted no cut, and one who wanted a 50-bp cut (you can guess who that was…). He made it abundantly clear the Fed is now well-positioned to wait, effectively signaling that we’ve entered a holding pattern.

For me, that means that January and March are off the table — for now. Could that change? Of course. But based on what we know today, the Fed is hitting the pause button.

He reaffirmed the Fed’s outlook for solid growth next year, even suggesting it could tick up from the current 1.7% rate — exactly in line with the 2%+ GDP consensus we discussed yesterday.

But then came the surprise. JJ announced the return of QE — yes, that QE — but with a twist. Instead of buying long-dated bonds like we did during the GFC era, this new version focuses on $40 billion of short-term bills. It begins on Friday and will operate monthly (it is unclear for how long) and is designed to stabilize money markets and keep the Fed Funds rate within its new target range.

And finally — he couldn’t have been clearer.

We are now sitting right on top of what several FOMC members consider the neutral rate. The labor market may be softening, but it is nowhere near collapsing.

Inflation? Yes, it might tick a bit higher in the near term, but the Fed views that as temporary, not trend changing. (Oh boy, do I hope he is correct!) He is not really worried about it….and finally, in what was the most surprising moment of the presser, JJ effectively punctured the hysteria surrounding the Trump Tariffs. He may as well have called it what it was - Hysteria. Unfounded, Emotional & Overblown.

In the end, the markets loved what it heard – and up we went….At 4 pm – here is what the scoreboard looked like – The Dow gained 500 pts or 1.05%, the S&P up 46 pts or 0.7%, the Nasdaq added 77 pts or 0.3%, the Russell rose by 34 pts or 1.3%, the Transports jumped by 453 pts or 2.7%, the Equal Weight S&P advanced by 105 pts or 1.4% while the Mag 7 rose by 70 pts or 0.2%.

Did you notice? Did you catch where the real action was?

The Equal Weight S&P, the Dow, the Transports, and the Russell all surged 1% or more, with the Transports surging by 2.7%.

Now compare that to the so-called market generals: the S&P, Nasdaq, and Mag 7 — all of which were the underperformers on the day. The Nasdaq and Mag 7 couldn’t even muster a 0.5% gain on a day when the tone was ‘festive’ – well, it is the holiday season!

That boyz and girlz is not noise, it’s a message.

When the Dow, the Transports, the Russell, and the Equal Weight S&P all outperform by a wide margin, it tells you that leadership is broadening and that suggests a healthy market. Yesterday was not another AI-driven, tech mega-cap melt-up - the Nasdaq and the Mag 7 lagged — not because anything is wrong with them, but because investors are finding value in other sectors. Think – the ‘Generals’ – (AI/Tech) resting and the ‘Troops’ (the broader mkt) advancing. Just look at this – the Value trade – SPYV up 1% outperformed the Growth trade – SPYG up 0.4%! – Does it get any clearer?

Cyclicals, industrials, financials, transports — the groups that need real economic activity to thrive — came alive! I mean look at it – of the 11 S&P major groups – we saw Basic Materials +1.9%, Industrials +1.8%, Financials +1.15%, Healthcare + 1.5%, Consumer Discretionary +1.5%, Energy +1%...You know what lagged? Tech was only up 0.5%, Consumer Staples + 0.3%, Communications + 0.6%, Real Estate +0.2% while Utilities ended flat.

Down the list we had the Homebuilders surge up 3%, Retail +1.4%, Airlines +2%, Aerospace & Defense + 1.1%, Big Pharma + 1.7% and the list goes on. Anything in the ‘tech’ space was a clear underperformer – Cyber +0.6%, Disruptive Tech + 0.75%, Software + 0.1%...And clearly – all the contra trade came under pressure as well.

Bonds advanced – the TLT up 0.4% while the TLH rose by 0.35%. The 10 yr is now yielding 4.14% while the 30 yr is yielding 4.77% - a bit lower than Tuesday. 30 yr mortgages are still at 6.2% for a FICO score of 720+ while auto loans are still commanding rates in the high 6’s and used car rates are about 9.6% for prime credit borrowers and more like 19% for sub-prime borrowers. Oh, and that Bloomies credit card – yeah – you’re paying nearly 30% if you carry a balance! Yesterday’s cut meant nothing to any of the revolving credit cards out there.

Oil is holding steady…..this morning it is trading at $57.50 – inching ever closer to the $55 target that we have been discussing for months now. We remain in the $56/$60 trading range.

And now gold….recall what I said yesterday – gold was in the point of a tightening triangle – it only had 2 choices – break out or break down…..and I said that if JJ sounded hawkish - gold should fall and if he sounded dovish – it would rally…

This morning Gold down $15 at $4,214…. – Now yesterday it traded between $4,191 and $4,230, closing at $4,228 up $20 – as the gold bugs are not sure what they heard – was he dovish or hawkish? This morning it is down $15 at $4,213 as we move further into the charted triangle formation. Yesterday – it appeared as if it wanted to break ‘out’ but this morning it looks like it wants to break ‘down’. – Oh boy, what to do? Refer to yesterday’s note for a fuller explanation.

Bitcoin and Ethereum appear immune to yesterday’s announcement. There was essentially – NO reaction. This morning – Bitcoin is trading at $90,200 and Ethereum is trading at $3,200.

Yesterday the VIX fell nearly 7% - and that makes sense….as far as investors are concerned – there was nothing to fear in yesterdays’ news….

This morning the VIX is up 2% — kissing resistance — while US futures trade lower. And what’s driving the caution? ORCL. The market is telling you that last night’s report was not what it wanted to hear, and it’s reigniting all kinds of questions around AI, cloud demand, and stretched valuations.

Now — earnings per share? Blowout. $2.26 vs. the $1.64 estimate. But that’s where the good news ended. Cloud revenue — which captures both IaaS and PaaS — rose 36% y/y to $8 billion, but the Street wanted $8.04 billion. A miss is a miss, and that was the first red flag. Software revenue fell 3% to $5.88 billion vs. the $6 billion estimate — another miss.

And then came the big one: Oracle now expects AI-related capex to run $15 billion higher than previously thought. That immediately triggered concern about rising costs, extended return timelines, and the broader question once again - Are investors overpaying today for AI earnings that may be years away?

That’s all the algo’s needed — flip the switch and go into sell mode. The stock is off 11% this morning at $197.50, taking us right back to late-November levels.

And this morning – THAT news is sending US futures lower. The Dow -110, S&P -40, Nasdaq -200, and the Russell is -3.

European markets are slightly higher across the board - France is in the lead up 0.5% while the UK is up 0.1%. The Swiss National Bank kept rates unchanged at 0.0%! – they have been 0 since June 2025. Inflation is also almost non-existent - But let’s be honest – Switzerland is an outlier! Next week Europeans will get the BoE and ECB decisions.

The S&P closed at 6,886, up 46 points on the day… after trading as low as 6,824 and as high as 6,900. Yes — it was another new closing high, but we still haven’t pierced the all-time intraday high at 6,920. Not yet.

There is one more thing on the horizon that could inject a little volatility into the tape as we move toward year-end: the Supreme Court Tariff Decision, which is expected any day now.

Now — don’t make yourself crazy. Even if the Court rules the tariffs invalid, Scotty (Bessent) reminds us that there are plenty of other ways to “skin the cat.” And honestly, I’m not convinced that’s where the decision lands anyway.

And remember this: a negative headline that sparks short-term chaos can often create a long-term opportunity for the investor. So, my attitude? Bring it on!

In the end – the message that I took away from yesterday was that the economy is solid, inflation is manageable, the labor market is stabilizing, and the Fed is not going to slash and burn rates just because Trump wants them to.

Crab cakes diane

For this you need – 1 egg, 2 tbls of Dijon Mustard, 2 tsp of Worcestershire sauce, 2 tsp old bay seasoning, sea salt, black pepper, 1/3 c of mayo, 3 scallions, 1 lb of lump crab meat and Italian seasoned breadcrumbs.

Begin by whisking all of the ingredients EXCEPT the crab and breadcrumbs and set aside.

Now take the crab and put in the bowl with the breadcrumbs – mix gently.

Now – add the ‘whisked ingredients’ and again mix gently trying to keep the pieces as large as possible. Form the patties.

Refrigerate for ‘at least 2 hours.

In a large skillet – add butter and canola oil to the pan – heat until it shimmers.

Now gently add the cakes – do not overload the pan. Cook for 3 – 5 mins per side.

Serve with mustard sauce.