Have you ever waited all year for a present, convinced it’s exactly what you asked for, only to open the box and realize it comes with a bunch of fine print? That’s pretty much where stock markets stand right now, the night before the Federal Reserve’s December meeting.
Everyone—and I mean everyone—expects a quarter-point cut tomorrow. The probability sits above 88% on the futures market. But here’s the twist nobody wants to talk about at holiday parties: the Fed might hand us the cut while quietly whispering, “Don’t get used to it.” In trader lingo, that’s called a hawkish cut, and it has the potential to suck the air right out of this late-year rally.
One Cut Does Not a Party Make
Let’s be honest—most of the good news feels already baked in. Stocks have been climbing a wall of worry all autumn, powered by falling inflation prints and the growing certainty of easier policy. The S&P 500 is knocking on all-time highs, small caps are finally waking up, and even some of the beaten-down international markets are catching a bid.
But markets hate surprises, and the biggest surprise tomorrow might not be the cut itself. It will be everything that comes after the cut.
The Dot Plot: Where Dreams Go to Be Adjusted
Remember that little chart the Fed updates every few meetings? The one with the anonymous dots showing where each policymaker thinks rates will be in one, two, three years? Yeah, that thing moves markets more than the actual decision sometimes.
Right now, investors are priced for roughly three to four cuts next year. If tomorrow’s dot plot shows only two—or worse, just one—you can bet the mood will shift fast. I’ve watched these meetings for years, and I can tell you the press conference after the dot plot release is often more important than the statement itself.
A single hawkish sentence from the Chair has crushed more rallies than I care to count.
Chair Powell has mastered the art of sounding dovish while leaving himself plenty of room to stay restrictive if inflation rears its head again. That balancing act is about to be tested.
Small Caps Are Having Their Moment—For Now
While everyone obsesses over the Magnificent Seven, something interesting is happening underneath the surface. The Russell 2000 touched a fresh intraday high yesterday. That’s not noise—that’s the kind of price action you see when rate-sensitive companies finally smell relief.
Lower borrowing costs matter far more to a regional bank or a cyclical manufacturer than they do to trillion-dollar tech giants that sit on mountains of cash. If the Fed sounds too cautious tomorrow, the small-cap party could end before the champagne gets poured.
- Regional banks have been on fire lately
- Industrial and materials stocks are showing relative strength
- High-yield spreads are tightening—classic risk-on behavior
All of those moves reverse quickly when the Fed reminds everyone that the “higher for longer” era isn’t completely dead.
Meanwhile, in Vietnam…
Sometimes the best opportunities aren’t where everyone is looking. While U.S. investors fixate on every word from Washington, one Southeast Asian market has quietly become one of the best performers on the planet this year.
The main Vietnam exchange is up more than 60% in dollar terms in 2025. That’s not a typo. Domestic reforms, friend-shoring trends, and a young, growing consumer base are finally getting the attention they deserve.
And unlike some other emerging markets that surge and then crash, analysts actually sound constructive about the sustainability here. Property sector reforms are progressing, foreign ownership limits are easing, and the country keeps signing trade deals left and right.
Funny how a little diversification can make the Fed’s mood swings feel less life-or-death.
Nvidia and the China Question Nobody Can Answer
On the semiconductor front, there’s cautious optimism that restrictions might be easing—just a bit. Word is that Washington has cleared the way for certain advanced chips to flow to Chinese customers again.
The initial market reaction? A collective shrug. But dig a layer deeper and you find analysts quietly upgrading forecasts. These aren’t the absolute bleeding-edge products, but they’re a lot better than what was available six months ago.
The bigger question is whether demand will actually materialize. Beijing has spent years—and billions—pushing domestic alternatives. Pride and policy both argue for self-reliance. Still, when you need the absolute best performance for training massive models, ideology sometimes takes a backseat to reality.
What History Says About December Fed Meetings
I went back and looked at the last ten December decisions where a cut was heavily expected. The pattern is clear: when the Fed sounds like it’s already thinking about pausing, the post-meeting bounce rarely lasts.
| Year | Cut Delivered | Tone | S&P 500 Next Month |
| 2018 | No (pause) | Hawkish | -9% |
| 2019 | No (on hold) | Neutral | +3% |
| 2024 (July preview) | First cut | Dovish | +7% |
Small sample, sure, but directionally interesting. The tone matters more than the action.
How to Position If Things Get Hawkish
If tomorrow feels like a buzzkill, here are a few thoughts that have served me well in similar environments:
- Quality over momentum—big, cash-rich companies tend to hold up better
- Short-duration bonds suddenly look attractive again
- Defensive sectors (utilities, staples, healthcare) often outperform in the weeks after a hawkish surprise
- Gold and the dollar can both catch bids—classic “risk-off” duo
None of this means the bull market is over. It just means the easy part—where every dip gets bought because “cuts are coming”—might be behind us for a while.
The Bottom Line
Tomorrow we’ll probably get the cut we’ve been promised. But the celebration could be short-lived if the Fed uses the moment to remind everyone that bringing inflation all the way back to 2% is still job one.
In my experience, the best trades after Fed meetings aren’t about predicting the headline. They’re about listening carefully to the subtext—what isn’t said can be just as important as what is.
Either way, it’s going to be a fascinating twenty-four hours. Markets have had a fantastic run. Now we find out whether the Fed is ready to keep the punch bowl out a little longer—or if it’s time to start cleaning up before someone gets hurt.
Stay nimble, keep some dry powder, and whatever you do—don’t fight the Fed. At least not yet.
