Remember that nervous Friday a couple of weeks ago when the Nasdaq sliced clean through its 50-day moving average like it was made of tissue paper?
Yeah, me too. It felt like the air was coming out of the balloon fast. One minute everyone was talking about endless AI spending, the next we were staring at the 200-day average and wondering if the party was truly over. And then, almost overnight, everything flipped.
By the following weekend the mood had shifted so dramatically it almost gave me whiplash. Suddenly the Fed sounded dovish again, rate-cut odds were exploding higher, and stocks were ripping faces off. What the heck happened?
The Fed Put Is Alive and Kicking Harder Than Ever
Let’s be honest, most of us thought the famous “Fed Put” had retired sometime after 2022 when the central bank was hiking rates into a slowing economy. Turns out it was just taking an extended vacation.
In the span of basically one week, the probability of a December rate cut went from a coin flip (actually worse, around 35%) to practically a done deal at 83%. That’s not a gentle drift, that’s a rocket ship.
And it wasn’t driven by some blockbuster jobs report or plunging inflation print. No. The real catalyst appeared to be equity prices themselves hitting technical levels that made policymakers uncomfortable.
When the 50-Day Becomes the Line in the Sand
I’ve been watching charts for longer than I care to admit, and there’s something almost magical about the way markets react when a major index breaks key moving averages in thin holiday liquidity.
The Nasdaq 100 hadn’t closed below its 50-day since the post-election surge began. The moment it did, the selling accelerated straight toward the 100-day, then looked ready to keep going. Technicians were openly talking about a quick 7-10% further drop to the 200-day.
Apparently that scenario was too ugly to contemplate for an administration that has made rising stock prices a regular talking point. Within days we got a parade of Fed speakers sounding noticeably more accommodative, weekend headlines about potential personnel changes that markets read as ultra-dovish, and boom, the put was back.
The Fed doesn’t target stock prices, except when it kind of does.
Every cynical trader ever
Numbers Don’t Lie: The Past Five Days Were Wild
Let’s actually look at what happened once the cavalry arrived:
- Nasdaq 100: +5.7% (massive outperformance>
- S&P 500 Equal Weight: +3% (the “rotation trade” got left in the dust)
- 10-year Treasury yield: dropped from 4.07% to 4.02%
- Bitcoin: back above $90,000 after dipping under $82k
- Investment-grade credit spreads: tightened 5 basis points
- High-yield spreads: followed suit aggressively
That, my friends, is what a textbook relief rally looks like when the market collectively decides the central bank has its back again.
The Dovish Parade in Detail
It started with New York Fed President Williams sounding way more open to cuts than anyone expected. Then over the weekend we got a chorus of governors suddenly remembering that inflation was “transitory” after all, or at least moving convincingly toward target.
The cherry on top? Reports that Kevin Hassett, someone markets view as extremely friendly to easy financial conditions, is the leading candidate for Fed Chair when the current term expires. Whether that’s accurate or not, the signal was clear: policy is likely to stay accommodative, possibly more so.
In my experience, when Treasury, the administration, and the Fed all appear to be rowing in the same direction, good things tend to happen for risk assets. At least in the short to medium term.
Is Anyone Else Finding This a Little Ironic?
Here’s what I can’t quite get past: the Fed appears to have pivoted dovish because stocks were weak, and now we’re likely to get that rate cut while stocks are busy printing all-time highs again.
It’s the ultimate Catch-22. The central bank rides to the rescue to prevent a meltdown, succeeds spectacularly, and now has to deliver easing into strength. Classic.
Don’t get me wrong, I’m not complaining. But it does make you wonder how many times this particular play can work before something breaks.
Beyond the Fed: The Other Ingredients in This Rally Recipe
While the Fed Put is clearly the main course, there are some tasty side dishes helping this rally along.
First, the government shutdown drama ended with backpay coming for federal workers, always a nice little economic sugar hit heading into the holidays.
Second, and maybe more important longer term, the narrative around chip exports has flipped dramatically. After months of tightening restrictions, particularly toward China, we’re suddenly hearing that high-end chips might flow more freely to certain Middle Eastern countries and possibly even parts of Asia.
That changes the growth math for the entire semiconductor complex in a major way. The idea that demand for cutting-edge silicon is literally insatiable just got another powerful proof point.
The TPU vs GPU Debate That Wasn’t
You might have caught the brief flare-up when people started asking whether new tensor processing units (TPUs) could displace traditional GPUs for AI training. For about 48 hours it felt like the entire Magnificent 7 was at risk.
Then reality set in: even if alternative architectures gain share, the absolute amount of compute needed keeps exploding. We’re not in a zero-sum game here. More chips of all kinds will be required, full stop.
The market shrugged off the “threat” almost as quickly as it appeared. Funny how that works when the Fed is suddenly your friend again.
Seasonality: December Usually Delivers
Let’s not bury the lede on one of the most reliable patterns in markets. December, especially the second half, has been overwhelmingly positive for stocks going back decades.
Combine strong seasonality with low liquidity, a freshly re-energized Fed Put, and positioning that likely got pretty light during the scare, and you have the ingredients for a powerful squeeze higher.
I’ve found that trying to fight December rallies is usually a losing battle more often than not. Better to ride the wave and ask questions in January.
But Are We Ignoring Real Risks?
Look, I’m enjoying this move as much as anyone. My accounts are happily in the green. But it’s worth remembering what spooked markets in the first place.
The questions about astronomical AI capex, consumer health, and whether valuations didn’t disappear just because Jay Powell’s colleagues started sounding dovish.
- Are companies really going to keep spending $50+ billion per quarter on data centers indefinitely?
- Is the average consumer actually in good shape, or are we papering over cracks with “buy now, pay later” and credit-card debt?
- Do forward earnings justify these multiples if revenue growth from AI disappoints even slightly?
Those concerns are still out there. They’re just being drowned out by easy money and holiday cheer for now.
Bottom Line: Enjoy the Rally, But Keep Your Eyes Open
Right now the path of least resistance for risk assets is clearly higher. The Fed has made that much obvious. With December seasonality kicking in, liquidity thin, and shorts likely covering in droves, trying to stand in front of this freight train feels foolish.
That said, I’ve been doing this long enough to know that when everyone suddenly agrees the central bank will always save the day, that’s usually when the script gets more interesting.
For now, though? Pour yourself some eggnog, enjoy the green screens, and maybe use any further strength to rebalance into the areas that will matter most in 2025, domestic manufacturing, energy security, and whatever comes after the current AI buildout frenzy.
Because while Santa might be coming to town this December, he doesn’t stick around forever.
Happy holidays, and may your stops be wide and your gains wider.
