Have you ever waited months for a gift you were absolutely sure was coming, only to open the box and feel… a little underwhelmed? That’s pretty much where the entire stock market stands right now, less than 24 hours before the Federal Reserve’s December meeting.
Everyone and their dog knows a quarter-point cut is on the way. The probability sits above 87%. The real question isn’t if they cut, but how they cut — and whether the wrapping paper hides some coal.
The “Hawkish Cut” That Could Ruin the Holiday Rally
In plain English, a hawkish cut is when the Fed lowers rates but sounds suspiciously eager to slam on the brakes again soon. Think of it as your boss giving you a bonus while reminding you that next year’s budget is getting slashed.
The market has spent weeks pricing in not just this cut, but two or three more in 2026. Any hint that those extra cuts are in jeopardy could trigger an abrupt mood swing.
Three things will decide whether Wednesday feels like Christmas morning or the day the Grinch shows up:
- The updated dot plot — where Fed officials anonymously mark their rate forecasts
- Jerome Powell’s tone during the press conference
- Fresh projections for growth, unemployment, and especially inflation
Last quarter, the median dot showed three cuts for 2025. If that number shrinks to one or two, stocks that have sprinted ahead on easy-money hopes — I’m looking at you, small caps and tech — could give back gains fast.
Small Caps Are Already Partying Like It’s 2023
Speaking of small caps, the Russell 2000 touched a fresh intraday high yesterday even while the Dow lagged. That rotation into rate-sensitive names has been one of the clearest trades of the past month.
Lower borrowing costs matter enormously for smaller companies that live closer to the edge on debt. But if the Fed signals “one and done” for a while, that rotation could reverse just as quickly as it started.
“The market is pricing in perfection. Any deviation risks a violent repricing.”
— Fixed-income strategist at a major U.S. bank
Meanwhile, Across the Pacific…
While we obsess over every syllable from Powell, some fascinating things are happening in Asia that could matter just as much for portfolios next year.
India just became the latest battleground for Big Tech dollars. Microsoft pledged another $17.5 billion through 2029 for cloud and AI infrastructure. Not to be outdone, Amazon countered with a $35 billion commitment of its own. That’s real money chasing real growth in a country that still has catching-up to do on digital infrastructure.
In my view, India’s AI build-out could turn into the decade’s most under-appreciated growth story. Demographics, talent, and now capital are finally lining up.
China’s Mixed Inflation Print Tells Two Stories
Over in China, November consumer prices rose at the fastest pace in almost two years — 0.7% year-over-year. Sounds decent, right? Except producer prices fell 2.2%, worse than expected.
Translation: companies are still squeezed between rising input costs and weak pricing power. Beijing keeps rolling out stimulus, but deflationary pressures refuse to disappear entirely. That backdrop makes any U.S.-China trade thaw especially valuable for American tech names with exposure there.
Nvidia Just Got a Quiet Christmas Present
Speaking of trade thaw, word leaked that the current administration has quietly loosened some restrictions on advanced chip sales to China. Nvidia shares barely budged on the news — maybe because investors have been burned before on similar headlines that later reversed.
But analysts I follow are genuinely optimistic this time. Even a modest increase in allowable performance could add billions to the top and bottom line over the next couple of years. When you’re trading at 35 times forward earnings, an extra billion here or there moves the needle.
The Bigger Picture Nobody Wants to Talk About
Here’s the part that keeps me up at night: the U.S. is still living on borrowed time when it comes to AI leadership.
Yes, we have the best models and the most advanced fabs today. But China graduates roughly four times as many STEM students every year. Scale eventually matters. Talent compounds.
Recent testimony on Capitol Hill painted the picture bluntly: America’s lead in chips is wide, but our lead in human capital is shrinking fast. Throw in visa restrictions that send brilliant PhDs home after graduation, and you start to understand why some experts sound alarm bells.
“Our edge in brainpower is deteriorating dangerously.”
— Author of a bestselling book on the semiconductor race
In my opinion, the next administration — whoever it ends up being — will have to treat immigration policy as national-security policy if we want to stay ahead in AI. Everything else is noise.
What Should Investors Actually Do?
Practical advice heading into the Fed decision:
- Don’t try to outsmart the room on the cut itself — it’s baked in
- Pay attention to the 2025 dot plot like your portfolio depends on it (because it kind of does)
- Consider trimming winners that ran hardest on multiple-cut hopes — small caps, regional banks, REITs
- Keep some dry powder. Volatility after Fed announcements has been brutal lately
- Remember that bad news can still be good news if it forces the Fed’s hand lower next year
Personally, I’ve been raising a little cash and adding selectively to names with strong non-U.S. revenue streams. When everyone is crowded into the same trade, it rarely ends well.
Bottom line? Tomorrow will probably bring lower rates, but the celebration might be short-lived. Markets have climbed a wall of worry all year — and that wall just got a fresh coat of hawkish paint.
Stay nimble, keep your eyes on the dot plot, and maybe hold off on the champagne until we hear what Powell actually says.
Because in this market, the Fed always gets the last word.
