Fed Rate Cut Sparks the Great Market Rotation

Fresh news and strategies for traders. SPY Trader episode #1454. The market reacts to the Federal Reserve's rate cut, causing a significant rotation out of highflying tech stocks (like Oracle, which plunged 11%) and into cyclical and value sectors. We break down the Kshaped performance, identify the new leading sectors, and outline a balanced strategy for navigating these volatile shifts.

Episode Transcript

(00:00):
Hello and welcome back to Spy Trader .
I'm your host , Barry Bullish , and it is 5 am on Friday , December 12th , 2025 , Pacific time .
We are kicking off the final trading day of the week , and boy , do we have action .
The market is mixed , highly volatile , and undergoing a serious rotation after the Federal Reserve delivered its first rate cut earlier this week .

(00:23):
We have record highs , sector shocks , and broadening market strength , so let's jump right into the news .
Yesterday was truly a tale of two markets .
The Dow Jones Industrial Average charged forward , hitting a fresh record high , surging 1.34% as money poured into cyclical and value stocks .

(00:43):
The S&P 500 managed a modest 0.21% gain , also closing at a new record .

But notice where the weakness was (00:51):
the Nasdaq Composite lagged the broader indices , dipping 0.25% .
This highlights the " Kshaped " performance everyone is talking about , where the rally is broadening out beyond the highflying tech names .
The major macro driver , of course , was the Federal Reserve cutting its benchmark rate by 25 basis points to a range of 3.50% to 3.75% .

(01:21):
This action , coupled with mixed but cooling labor data — initial jobless claims rose above expectations to 236,000 — has cemented optimism in the bond market , pushing the 10year Treasury yield down to around 4.10% .
But the biggest story in the corporate world , and the reason for the Nasdaq's dip , was the shockwave from Oracle .

(01:46):
Oracle shares plummeted nearly 11% following disappointing quarterly revenue and higherthanexpected capital expenditures .
This immediately raised concerns about the pace and profitability of massive AIrelated investments , pressuring other AItied infrastructure stocks like Nvidia and Micron Technology .
Meanwhile , sectors that benefited from the rotation soared .

(02:09):
Financials , driven by an upgrade that sent Visa up 6.50% , and Industrials were the clear outperformers .
So , here is the insight and analysis .
The US market is currently in an earningsdriven bull phase that is broadening out .
The Fed’s rate cut provides a significant macro tailwind , reducing the cost of capital and supporting corporate profitability outside of the highly ratesensitive tech sector .

(02:37):
The Oracle news is the crucial wakeup call for investors who were underwriting AI at any cost .
The market is now demanding clear revenue and profit realization for that capital spending .
This confirms the ongoing shift of momentum toward cyclicals and value , as seen by the strong performance in sectors tracked by ETFs like the Industrial Select Sector SPDR Fund .

(03:02):
Given this environment of rotation , we need a balanced approach .
First , maintain your core broad market exposure .
The S&P 500 is still driven by strong earnings , so keep your foundational positions in instruments like the SPDR S&P 500 ETF Trust , or SPY , using dollarcost averaging to manage valuation risks at these highs .

(03:28):
Second , tactically overweight the new leaders .
I strongly recommend adding exposure to sectors benefiting from a broadening economy and easing rates , specifically the Industrial Select Sector SPDR Fund ( XLI ) and the Health Care Select Sector SPDR Fund ( XLV ) .
For stock examples , the stability of UnitedHealth Group in Healthcare is appealing .

(03:52):
Third , exercise caution in tech .
The secular trend for AI remains , but shortterm high valuations are volatile .
Maintain selective exposure through software companies like Adobe , which recently beat estimates , rather than blindly chasing infrastructure plays facing capital expenditure scrutiny .

(04:13):
Finally , increase fixed income allocation .
With the Fed signaling a pivot and the bond market expecting further cuts , increase stability in your portfolio using broad bond ETFs like the iShares Core U.S.
Aggregate Bond ETF ( AGG ) .
That’s it for this edition of Spy Trader .
I’m Barry Bullish , and I hope your Friday is green .