Have you ever watched a magician pull a rabbit out of a hat and still somehow make the trick feel predictable? That pretty much sums up what happened yesterday with the Federal Reserve.
Everyone knew a rate cut was coming. Everyone expected the Fed to sound a little cautious. But almost nobody expected the market to throw a full-blown party afterward. Yet here we are: the Dow closed up more than 400 points, the S&P 500 flirted with all-time highs, and analysts are suddenly talking about a Santa Claus rally that could push us past 7,000 before New Year’s champagne even hits the glass.
So what gives? Let’s dig in.
A Classic Hawkish Cut… With a Twist Nobody Saw Coming
The headline move was exactly what the market priced in: a 25 basis-point cut that brings the federal funds rate to a target range of 3.50%-3.75%. Yawn, right? Except it wasn’t unanimous—two regional presidents wanted to stand pat, and the updated dot plot now shows only one additional cut penciled in for the entire year of 2026.
On paper, that’s about as hawkish as it gets in a cutting cycle. Higher for longer, just with slightly less “higher.”
Yet the stock market didn’t care about the paper version. It cared about what the Fed actually did behind the scenes.
The $40 Billion Stealth Easing Bomb Nobody Talked About
Buried in the implementation notes—literally the fine print—was the real gift: starting this Friday, the Fed will begin purchasing up to $40 billion in Treasury bills per month.
Translation? They’re injecting serious liquidity back into the system without calling it QE. It’s stealth easing dressed up in boring technical language. And Wall Street absolutely loves a good disguise.
“This is the Fed’s way of easing financial conditions without admitting they’re easing,” one senior trader told me yesterday afternoon. “It’s genius, actually.”
Think about it. Short-term rates might stay relatively high, but flooding the system with fresh cash tends to push risk assets higher. It compresses credit spreads, lifts stock multiples, and generally makes investors feel warm and fuzzy. Exactly what happened within minutes of the announcement.
Jerome Powell’s “No Hike Ever” Assurance
Powell also went out of his way during the press conference to squash any remaining hike fears.
When asked directly about the possibility of raising rates again, he essentially laughed it off: “I don’t think that a rate hike is anybody’s base case at this point. I’m not hearing that.”
In trader speak, that’s the closest thing to a money-printing guarantee you’ll ever get from a central banker. No wonder the VIX dropped like a rock.
The Economy Is Still “Extraordinary”
Perhaps my favorite moment came when Powell described the current state of the U.S. economy in one word: extraordinary.
He backed it up with upgraded growth forecasts—now 2.3% for 2026 versus 1.8% back in September—and unemployment projections that barely budged. Translation: the Fed believes the soft-landing scenario is basically locked in.
When your central bank thinks the economy is extraordinary and secretly pumps liquidity while promising never to hike again, stocks tend to do one thing: go up.
Why the “Hawkish Cut” Narrative Fell Apart in Real Time
Let’s be honest—most of us (myself included) went into yesterday expecting a classic hawkish-cut price action: an initial pop on the cut itself, followed by a “sell the news” fade as the dour dot plot sank in.
That script lasted all of about 20 minutes.
- The Treasury bill purchase announcement hit the wires
- Powell downplayed hike odds
- Growth forecasts got upgraded
- And suddenly every algo on Wall Street flipped from “sell” to “buy the dip”
By the time Powell finished talking, 10-year yields were lower, the dollar was softer, and small-caps were ripping their best day in months. The exact opposite of what a truly hawkish cut should produce.
What This Means for Your Money Right Now
Here’s the practical takeaway—and I can’t stress this enough:
We are likely entering the sweetest spot of the entire cycle. Rates are coming down (slowly), liquidity is going up (quickly), growth is solid, and inflation—while still above target—is trending in the right direction.
In my fifteen years watching these meetings, I’ve rarely seen a setup this constructive for risk assets heading into year-end.
- Equities – Especially small-caps, financials, and cyclicals look incredibly well positioned
- Commodities – Gold quietly broke out to new all-time highs yesterday; energy could be next
- Crypto – Bitcoin pushed back above $92k in the after-hours surge
- Bonds – Duration finally working again as real yields compress
The Oracle Miss That Barely Mattered
One funny sidebar: Oracle shares initially tanked 11% in after-hours trading after missing revenue estimates, even though their AI backlog crushed expectations.
By morning, half those losses were already recovered. That’s how strong the overall risk appetite has become— even a legitimate earnings miss barely leaves a mark when the Fed is secretly easing.
Energy Stocks Quietly Climbing Goldman’s Conviction List
Speaking of things flying under the radar—Goldman Sachs just refreshed its monthly Conviction List, and it’s absolutely loaded with energy names.
One major integrated oil company was specifically called “underappreciated,” while another was flagged for “continued aggressive buybacks.” When the smartest guys on the Street start pounding the table on a sector the day after the Fed turns stealth-dovish, you pay attention.
Looking Ahead: The Path to S&P 7,000?
Senior economist José Torres at Interactive Brokers summed it up perfectly yesterday evening:
“The last rate decision of 2025 has essentially paved the way for a Santa Claus rally to end the year, and the S&P 500 is poised to exceed the 7,000 milestone in the next few weeks.”
I’m not usually one to chase bold calls, but everything lines up here. Seasonal tailwinds, fresh liquidity, upgraded growth, and zero hike risk. If we don’t see a meaningful melt-up from here, I’ll be genuinely surprised.
The bottom line? Yesterday wasn’t just another Fed meeting. It was the moment the market realized 2026 might actually be pretty great after all.
And if you positioned defensively waiting for the “hawkish shoe to drop—well, it might be time to reconsider.
Because right now, the Grinch isn’t stealing Christmas. He’s busy buying calls.
Happy holidays, indeed.
