Fed Week: Will Rates Bring Cash or Coal?

Fresh news and strategies for traders. SPY Trader episode #1449. This week hinges entirely on the FOMC's final rate decision of the year. Markets are pricing in an 87% chance of a 25 basis point cut, fueling hopes for a 'Santa Claus Rally.' We examine the key employment (JOLTS, ECI) and inflation (PPI) data supporting this move. Plus, crucial AI checkups via earnings from Adobe, Oracle, and Broadcom. Our trade plan maintains a slightly Overweight equity stance, utilizing QQQ and IWM for tactical upside on a cut, while hedging risk with BND.

Episode Transcript

(00:00):
Welcome to Spy Trader .
I'm your host , Chuck " The Chart " Norris , waking up with you here on the West Coast .
It's 5 am on Sunday , December 7th , 2025 , Pacific time , and we are kicking off the most critical week of the quarter .

The entire market is holding its breath for one event (00:14):
the Federal Reserve's final rate decision of the year .
This week , we determine if Santa is bringing coal or cash .
Let's dive right into the key drivers .
Everything revolves around the FOMC meeting wrapping up this Wednesday .
Markets are currently pricing in an 87% chance that the Fed will cut rates by 25 basis points , lowering the target rate to 3.50% to 3.75% .

(00:45):
That is the big hope for a " Santa Claus Rally .
" If they surprise us with a pause , citing sticky inflation or strong jobs data , expect significant volatility and a likely selloff .

Supporting this decision , we have crucial employment data coming out early this week (00:57):
the key JOLTS report on Tuesday and the Employment Cost Index , or ECI , on Wednesday .
A weak reading in either of these is actually seen as bullish for the market because it increases the odds of that desired Fed rate cut .
Finally , we get the Producer Price Index , PPI , on Thursday .

(01:22):
We need that inflation indicator to stay cool to keep those disinflationary trends alive .
While the Fed takes center stage , don't ignore the corporate drivers .
This week is a crucial AI checkup .
We get earnings from three major technology bellwethers .
On Tuesday , we watch Adobe , ADBE , and Oracle , ORCL .

(01:44):
Oracle's performance , especially regarding its cloud computing demand and partnership with Nvidia , is key .
On Wednesday , the semiconductor heavyweight Broadcom , AVGO , reports .
A beat or a strong forecast from AVGO would provide a strong tailwind for the entire semiconductor complex and the Invesco QQQ Trust .

(02:06):
Outside of tech , Costco , COST , reports on Wednesday , giving us a vital snapshot of the midtohigh income US consumer's health .
The prevailing market sentiment is cautious optimism , assuming the Fed delivers that cut , which will keep Technology and Communication Services , like Microsoft and Amazon , in the driver's seat .

(02:27):
Time for the trade plan .
Given the high volatility leading into Wednesday , we are maintaining a slightly Overweight stance in equities , but keep 10 to 15% cash ready for potential dips .
Our core portfolio uses broad market ETFs like the SPDR S&P 500 ETF Trust , SPY , for stability .

(02:49):
For tactical opportunities this week , we have three concrete plays .

First , a Conditional Buy (02:54):
Focus on the AI growth engine via the Invesco QQQ Trust , QQQ .
If the Fed cuts , QQQ will get a disproportionate boost as their discounted future earnings look better .

Second , a Tactical Buy (03:08):
Smallcaps via the iShares Russell 2000 ETF , IWM .
Smallcaps are historically strong in December and fundamentally benefit most from lower borrowing costs .

Third , a Defensive Position (03:22):
Hedge the Fed risk with fixed income using the Vanguard Total Bond Market ETF , BND .
If the Fed surprises the market with a pause , BND is a great place to hide , as volatility causes a flight to safety in treasuries .
Also , keep Broadcom , AVGO , on your watchlist for a postearnings breakout on Wednesday .

(03:45):
That’s all the time we have for Spy Trader .
Have a profitable and smart trading week !