It’s one of those December mornings where everything feels quietly electric. The coffee is strong, the screens are green, and with only 17 trading days left in 2025, the market just refuses to take a real breather. Futures are pointing higher again—S&P 500 contracts up two-tenths, Nasdaq a little stronger—and that makes ten winning sessions out of the last eleven. The streak feels almost stubborn at this point, like the market is daring anyone to bet against it before the Fed steps in this Wednesday.
I’ve been doing this long enough to know that December rallies can be intoxicating, but they rarely run in straight lines. There’s always a catch lurking somewhere. This time the obvious catalyst is the Federal Reserve, but the real question on everyone’s mind isn’t whether they cut—it’s what they say about 2026. Let’s dig in.
The Fed Cut Everyone Sees Coming (And the One Almost No One Is Pricing)
Let’s start with the easy part: a 25 basis-point cut on Wednesday is basically a done deal. Markets are pricing north of 95% odds, and even the most hawkish Fed speakers haven’t pushed back hard enough to change that. What’s fascinating, though, is how quickly the conversation has shifted from “how much will they cut” to “how little will they cut next year.”
The bond market is telling an interesting story. After an initial dip, the 10-year Treasury yield is creeping back toward 4.15%. That’s not exactly screaming “dovish bonanza.” And then there’s this nugget buried in the noise: several strategists believe the Fed is about to quietly restart something that looks a lot like QE—Reserve Management purchases to the tune of roughly $45 billion a month. Bank of America’s rates team says that isn’t even close to priced in yet.
“The hurdle for further cuts in early 2026 is high.”
– What we fully expect Chair Powell to emphasize on Wednesday
If Powell drives that point home, the current “three more cuts by Christmas 2026” pricing could evaporate fast. Two cuts—or even just one—suddenly feels more realistic. That’s the kind of subtle shift that can turn a feel-good year-end rally into a January hangover.
Premarket Snapshot: Who’s Winning and Who’s Bleeding
The Magnificent 7 are mostly treading water this morning, which in itself is notable after the rotation trade we’ve seen lately. Tesla is the clear laggard, down 1.4% after Morgan Stanley flipped to equal-weight, arguing that every non-auto catalyst (robotaxis, energy, etc.) is now fully baked in. The rest of the crew is within a few tenths of flat—hardly the leadership we’re used to seeing.
- Carvana (+9%), CRH (+7%), and Comfort Systems USA (+1%) all popping on S&P 500 inclusion news—classic index-effect juice before the December 22 rebalance.
- Confluent rocketing 28% on reports IBM is closing in on an $11 billion takeover.
- Kymera Therapeutics surging 29% after positive Phase 1b data for KT-621.
- CoreWeave down 5% on a $2 billion convertible note offering—growth companies still have to fund somehow.
- Agios Pharma slipping 3% after the FDA punted on its thalassemia drug decision.
It’s a textbook late-cycle mix: index rebalance plays, M&A fireworks, and clinical trial binary events. The boring mega-caps are taking a smoke break while the second-tier names grab the headlines.
The Rotation Trade Is Real—And It’s Accelerating
Something fascinating has been happening under the hood. After carrying the market literally all year, the Mag 7 are suddenly yesterday’s news. Yardeni Research flat-out recommended going underweight the group versus the other 493 names in the S&P 500. Small caps, transports, and old-economy industrials have been ripping higher.
Call it whatever you want—breadth expansion, catch-up trade, or just mean reversion—but the equal-weight S&P 500 has quietly outperformed the cap-weighted index by a decent margin over the past couple of weeks. Consumer discretionary stocks, hammered all autumn, just posted their best two-week stretch in ages.
In my experience, when the generals stop marching and the troops suddenly sprint ahead, it’s rarely a bearish signal in the short term. It usually means new money is coming in and looking for places to hide outside the overcrowded mega-cap trade.
Corporate Deal Flow Heating Up
Maybe it’s the animal spirits that always seem to appear in December, or maybe companies just want to get deals done before the new administration shakes up antitrust policy, but the M&A tape is hot:
- IBM reportedly in advanced talks for Confluent (~$11 billion).
- Microsoft shifting custom silicon work to Broadcom from Marvell.
- Trump publicly waving antitrust flags at a potential Netflix–Warner merger.
- Robinhood pushing into Indonesia with two local brokerage acquisitions.
When deal rumors start flying this fast, it usually tells you two things: cash is burning holes in corporate pockets, and CEOs believe the economic backdrop remains supportive enough to pull the trigger.
Global Markets: China Surprises, Europe Shrugs
Over in Asia, Chinese indexes ripped higher after November export growth smashed expectations at +5.9%. Imports were softer than hoped, but the Politburo’s pledge over the weekend for “more proactive” macro policies and “moderately loose” monetary settings gave traders all the excuse they needed. The ChiNext jumped over 3%—its best day in months.
Europe is more of a mixed bag. The Stoxx 600 is basically flat, with industrials and insurers offset by weakness in consumer staples and chemicals. ECB hawk Isabel Schnabel dropped a minor bombshell saying she’s “comfortable” with market bets that the next move is a hike—sending Bund yields up a quick 4 bps before traders decided it wasn’t that big a deal after all.
Commodities and Crypto: Gold Quietly King Again
Crude is soft—WTI dipping below $60—but precious metals are firm. Gold is back above $4,210 and acting like it never left. Bitcoin continues its relentless grind, now knocking on $92,000. When both gold and bitcoin are bidding at the same time, it usually means investors aren’t quite sure whether to bet on inflation or systemic risk. Often it’s both.
What to Watch This Week
- Wednesday: Fed decision, new dot plot, Powell press conference.
- Wednesday & Thursday: Oracle and Broadcom earnings—the last big AI litmus tests of 2025.
- Tuesday: RBA decision (hold expected, but tone matters).
- Thursday: SNB and potentially the last ECB of the year.
- Friday: UK monthly GDP, final Eurozone CPI.
Perhaps the most interesting aspect? After Wednesday, the calendar gets awfully quiet right when holiday liquidity starts evaporating. Any hawkish surprise from Powell could echo loudly into the new year.
Bottom line: the market is enjoying its eggnog right now, and the Fed is about to hand out one more gift under the tree. But the tag on that gift might read “batteries not included for 2026.” Enjoy the rally while it lasts—because once the confetti settles, the real conversation about growth, inflation, and the neutral rate begins again. And history suggests those conversations rarely stay polite for long.
