Have you ever had that feeling the night before a really big exam? That weird mix of exhaustion and nervous energy where you know everything could change tomorrow, but right now everything just… sits there?
That’s pretty much the entire U.S. stock market right now.
As I write this late on Tuesday night, December 9, 2025, Dow futures are down a whopping 7 points. Yes, seven. S&P 500 futures? Basically glued to the flat line. Nasdaq 100 futures? Same story. The market is holding its breath, and honestly, it feels like the calm before something—maybe a storm, maybe a party, maybe just another Wednesday.
The Fed Holds All the Cards This Week
Tomorrow the Federal Reserve wraps up its final meeting of 2025, and almost everyone expects another quarter-point rate cut—number three in a row. The probability sits around 87% according to the futures market. In a normal year that would be a done deal, markets would have priced it in months ago, and we’d all be yawning.
But 2025 hasn’t exactly been normal, has it?
The Fed has spent the last year walking an impossibly thin tightrope: cool inflation without crushing the labor market. Some members want to keep cutting aggressively to guard against any whiff of weakness in jobs numbers. Others worry that cutting too fast could let inflation creep back up again—especially with potential new tariff policies and fiscal stimulus on the horizon.
Tomorrow we finally get the updated “dot plot,” the new economic projections, and—most importantly—Jerome Powell’s press conference at 2:30 p.m. Eastern. One slip of the tongue, one hint about pausing in January, or one overly dovish smile and the entire tone for 2026 could shift instantly.
Why the Market Feels Stuck in Neutral
Look at the price action lately and you’ll see exactly why nobody wants to commit right now.
Tuesday’s regular session was a perfect microcosm: the S&P 500 slipped 0.1%, the Dow dropped almost 0.4% (thanks in part to a rough day for JPMorgan), and the Nasdaq actually managed a tiny 0.1% gain on the backs of Broadcom, Tesla, and Alphabet. Breadth was okay, volume was light, and volatility—well, the VIX is sleeping below 15.
In other words: nobody’s fighting. Nobody’s celebrating. Everyone’s just… waiting.
“The favorable change for small-cap equities is consistent with our view that equity market breadth is widening.”
Global equity strategist Doug Beath, Wells Fargo Investment Institute
Meanwhile, Something Fascinating Is Happening Under the Hood
While the big indexes drift sideways, money is moving—and it’s moving in a direction a lot of us have been waiting years to see.
The Russell 2000—the index of smaller domestic companies—just punched to a brand-new all-time intraday high on Tuesday. Think about that for a second. In a year dominated by the usual mega-cap tech suspects, small caps are suddenly the ones making new highs.
Why now? Simple. Lower interest rates are rocket fuel for smaller companies. They tend to carry more floating-rate debt than their giant counterparts, so every quarter-point cut goes straight to the bottom line. Add in the prospect of deregulation and potentially bigger tax refunds in 2026, and suddenly the outlook for “the rest of the market” looks a lot brighter.
- Smaller borrowing costs = fatter profit margins
- Less regulatory headache = more cash to invest
- Stronger consumer = better domestic revenue growth
I’ve been saying for months that 2025 could finally be the year market breadth explodes wider, and we’re starting to see the very first green shoots.
Sector Rotation or Just a Head Fake?
Some folks will tell you this is classic late-cycle rotation: money leaving expensive mega-tech and flowing into cheaper, more rate-sensitive areas like small caps, financials, industrials, and even regional banks.
Others will roll their eyes and say we’ve seen this movie before—small caps tease a breakout, the Fed pivots or growth scares resurface, and the same seven tech stocks take back control.
Who’s right? Honestly, tomorrow’s Fed decision will tell us a lot. If Powell sounds confident about continued cuts into 2026 and the dot plot shows three or more reductions, I suspect the rotation has legs. If the language turns cautious—if they emphasize “data dependence” too heavily or the dots shift higher—then maybe this is just another head fake.
What to Watch Tomorrow Afternoon
Here’s my personal checklist for the Fed announcement—feel free to borrow it:
- The actual decision (99% chance of -25 bps)
- The statement language—do they drop “ongoing increases in the target range are not anticipated” or something similar?
- The dot plot—how many cuts are priced in for 2026?
- Inflation and unemployment projections—any major revisions?
- Powell’s tone on tariffs and fiscal policy (he’ll try to dodge, but watch the follow-ups)
- The Q&A minefield—someone always asks the question that moves markets
Last December the dovish pivot sparked a two-month Santa Claus rally. Last March the “higher for longer” message crushed rate-cut hopes and sent the 10-year yield screaming higher. Tomorrow could easily be one of those inflection points historians look back on.
Positioning for Whatever Comes Next
Personally, I’m not trying to heroically predict Powell’s exact words. Instead, I’ve been slowly adding exposure to areas that benefit from lower rates without being completely destroyed if the Fed pauses: quality small caps, regional banks with clean balance sheets, and industrial companies tied to domestic infrastructure spending.
At the same time, I haven’t abandoned the mega-tech leaders entirely. Many of them are now generating absurd amounts of free cash flow and starting to pay respectable dividends. They’re not the rocket ships of 2023 anymore, but they’re also not going to zero.
Think of it as barbell positioning: one foot in the “lower rates = everything rallies” trade, the other foot in “what if growth stays resilient and rates stabilize higher.” It’s not the sexiest strategy, but it lets me sleep at night when the entire market is paralyzed waiting for one man in a beige suit to speak.
Whatever happens tomorrow, one thing feels certain: the market narrative for 2026 is getting written right now. Will it be the year of broadening participation and a true bull market for the average stock? Or do the same handful of giants keep hogging the gains?
By 3:30 p.m. Eastern tomorrow we’ll have a lot more clarity. Until then, the futures will probably keep hovering within a few points of flat, traders will refresh the same headlines every five minutes, and millions of investors around the world will feel exactly like I do tonight—tired, caffeinated, and weirdly excited for whatever comes next.
See you on the other side of the Fed decision.
