Ever get that feeling when you’re standing at the very top of a roller-coaster, the car has stopped for a second, and you know the drop is coming but you’re not quite sure how steep it will be?
That’s exactly where the U.S. stock market finds itself on this quiet Tuesday in December 2025.
The S&P 500 closed basically unchanged, sitting a grand total of two points below the all-time closing high it set a couple of weeks ago. Volume is light, volatility is asleep, and everyone is pretending they’re not obsessively refreshing the economic calendar waiting for tomorrow’s Fed decision.
A Familiar Waiting Game With New Twists
We’ve been here before. Actually, we were in almost the exact same spot before the previous Fed meeting. Back then the market had priced in a decent chance of a December cut that the Fed never planned to deliver, so Chair Powell had to spend the press conference gently walking bond traders back from the ledge.
This time the script feels flipped. A December cut is basically baked in — futures are pricing roughly 98% odds — but almost nothing is priced in for early 2026. That gives Powell room to sound mildly dovish without igniting a full-blown rally in risk assets. Or at least in theory.
Since that last meeting the market has done a full round-trip: it sold off 5% (the first meaningful pullback since spring), then ripped right back up as dip-buyers showed up in force and several Fed speakers turned noticeably more accommodative, and fourth-quarter earnings continued to surprise to the upside.
The Reflation Trade That Wasn’t
Heading into this week, the tape had a distinctly reflationary flavor. Transports were waking up, regional banks were on fire, specialty retailers were catching bids, and commodities — especially copper and silver — were acting like the economy was about to boom in 2026.
Then today happened.
One casual comment from JPMorgan’s CFO at a conference — he called consumer spending trends “fragile” — and the entire financial sector got body-checked. JPM dropped 4% in a straight line, dragging the whole bank cohort with it. The move felt almost comically overdone given how far the group had run in recent weeks, but it highlights something important: investors have talked themselves into a big cyclical rebound story for next year, yet the conviction still feels paper-thin.
When one offhand remark from a bank CFO can knock 4% off the sector in an hour, maybe the “soft landing + fiscal boost = reacceleration” narrative isn’t quite as bulletproof as it looked last week.
Speculative Juices Starting to Flow Again
Meanwhile, the stuff that usually rallies because of looser financial conditions is suddenly wide awake. Silver is up almost 5% in two days. Bitcoin and the usual crypto suspects caught sharp bids. The unprofitable tech index is quietly outperforming for the first time in months.
It’s classic pre-rate-cut behavior: money feels loose even if the real economy still feels tight. Labor markets are cooling gently but not collapsing, consumer confidence is mediocre, small-business hiring plans are subdued — yet risk assets are acting like liquidity is already flooding the system.
That dissonance is exactly what makes this Fed meeting tricky. After tomorrow they’ll have cut a full 175 basis points in 15 months without ever having to deal with a proper recession scare. Historically that’s almost unheard of.
Treasury Yields Quietly Creeping Higher
One thing that’s different versus the last meeting is the bond market. The 10-year yield was sitting just under 4% back then. Today it kissed 4.20% before pulling back slightly.
The move isn’t dramatic yet, but the speed of the rise has people’s attention. This morning’s JOLTS report showed more job openings than expected, though quits and hires remain sluggish — the kind of mixed signal that lets everyone keep their preferred narrative alive.
If yields keep drifting higher into year-end it could cap the equity upside fairly quickly, especially with valuations are already stretched and the “buy the dip” crowd has been so consistent.
The Great AI Rotation Continues
Within tech, the shifting sands are fascinating. Nvidia — the undisputed king of the first AI wave — is basically flat since the end of Q3 despite today’s news that the new administration will allow some older-generation chip sales to China. The market yawned.
All the excitement has moved to the “custom silicon” camp: Broadcom, Google, and the ecosystem building proprietary AI chips. The price action split is stark. Money is rotating toward companies that can show a path to profitability without endlessly raising more capital.
- Nvidia: same price it hit three months ago
- Broadcom: new all-time highs weekly
- Microsoft/OpenAI complex: treading water
- Custom-chip food chain: on fire
That rotation tells you the market is getting pickier about which AI stories it’s willing to fund at any price.
Defensive Stocks Left for Dead
On the flip side, anything that smells even remotely defensive is being treated like it has cooties. Consumer staples, utilities, low-volatility ETFs — they’re all experiencing historic degrees of underperformance.
The S&P 500 Low Volatility ETF has lagged the broad index by more than 65 percentage points over three years. Staples are down 70 points relative. I don’t remember ever seeing gaps this wide outside of the late-1990s tech bubble.
At some point that extreme will matter. Maybe not tomorrow, maybe not next month, but animal spirits this lopsided rarely last forever.
Even inside staples there are weird divergences. PepsiCo, after announcing aggressive cost cuts and a price-roll-back truce with an activist, can’t get arrested. It now trades at a noticeable P/E discount to Coca-Cola for the first time in years. The market loved its snack exposure when growth was strong; now it’s treated like a liability.
So Where Does This Leave Us?
Tomorrow we get the rate cut almost everyone expects, probably accompanied by a slightly more cautious 2026 dot plot and some hand-waving about incoming fiscal stimulus (tax refunds, lower withholding, capex incentives) keeping growth alive.
The base case remains that stocks grind higher into year-end on seasonal strength and the absence of any immediate catalyst to sell. But the cross-currents are louder than they appear on the surface:
- Rising yields watching for any whiff of sticky inflation
- Reflation names need continual proof the consumer isn’t rolling over
- Speculative corners already pricing in aggressive easing
- AI money rotating to the next chapter of the story
- Defensive areas so hated they’re starting to screen cheap on an absolute basis
In my experience, when the market is this quiet on the surface but the rotations underneath are this loud, it usually means something is brewing. Whether that something resolves bullishly or forces a more meaningful consolidation probably comes down to two things: how quickly yields rise from here, and whether earnings revisions for 2026 stay positive.
For now, though, we wait. One more sleep until the Fed speaks, and the market — stuck in this oddly calm limbo — gets its next directional clue.
Feels a bit like that roller-coaster pause all over again, doesn’t it?
