Rate Cuts and Rotation: The December Market Playbook

Fresh news and strategies for traders. SPY Trader episode #1443. The script discusses the transition into December 2025 with a bullish outlook primarily driven by an 87% market expectation of a Federal Reserve rate cut, fueling the anticipated Santa Claus rally. While the S&P 500 is strong (up 16% YTD), the focus is shifting from concentrated big tech leadership to a broader market rotation, particularly into quality defensive growth names like Health Care and cyclicals like Financials (XLF). The analyst recommends maintaining diversified core exposure (VTI), using QQQ for satellite growth, and capitalizing on falling yields by adding longduration bonds (TLT) as part of a strategic shift benefiting from anticipated monetary easing and improved economic momentum.

Episode Transcript

(00:00):
Good morning and welcome back to Spy Trader , the only podcast that delivers your financial insights before your first cup of coffee .
I’m your host , Barry Cashflow , and it’s 5 am on Monday , December 1st , 2025 , Pacific time .
We are kicking off a brand new month with a cautious but decidedly bullish mood .

(00:21):
The big theme heading into December is the anticipated Santa Claus rally , fueled entirely by strengthening expectations of a Federal Reserve rate cut .
Futures are subdued this morning after a scorching November , which means we have to be tactical .
Let’s get straight to the headlines .
The US stock market finished last week with robust gains , positioning itself strongly for yearend .

(00:46):
The S&P 500 closed near 6,849.09 , completing a weekly performance up between 3.2% and 4% .
Impressively , this index is now on track for its third straight year of doubledigit returns , currently sitting up roughly 16% yeartodate .

(01:06):
However , the Nasdaq Composite , while strong , showed cracks of volatility , posting its first monthly loss since March .
The macroeconomic narrative is dominated by the Fed .
Dovish comments and mixed data have driven market expectations for a December rate cut up to around 87% .

(01:26):
This sentiment is the single largest bullish catalyst right now .
Further supporting this is the inflation picture .
The Producer Price Index , or PPI , showed the core rate increasing less than expected , reinforcing the disinflationary trend that Wall Street wants to see .
We also saw the benchmark 10year U.S.

(01:47):
Treasury yield drop to just above the 4% mark , reflecting confidence in that easing cycle .
Turning to sector rotation , we’ve seen a broadening of leadership beyond the big tech names .
Communication Services led weekly gains , powered by massive growth in stocks like Meta and Alphabet , both of which were up between seven and nine percent for the week .

(02:11):
But the real dark horse champion has been Health Care , which is the strongestperforming sector quartertodate , gaining over 13% .
This indicates a rotation into more quality , defensive growth names .
On the company front , the AI trade continues to be highly volatile .
While Intel jumped over 10% last week on speculation it might supply processors to Apple , key AI leader Nvidia was among the biggest losers on a recent trading day , facing profittaking pressure .

(02:42):
This highlights the risk of high concentration in the growth sector right now .
Our analysis suggests the game is shifting from narrow leadership — think just the Magnificent Seven — to a broader , qualityfocused strategy .
This means maintaining your core growth exposure but balancing it with cyclicals that benefit from lower rates .

First , for your core portfolio (03:02):
The market uptrend is strong , but concentration risk is high .
Use the Vanguard Total Stock Market ETF , or VTI , for broad diversification across market caps .
If you want concentrated tech growth , keep your allocation in the Invesco QQQ Trust , or QQQ , as a smaller , satellite position to manage that volatility risk .

(03:27):
Second , we need to capitalize on the rotation toward value and cyclicals .
The expectation of lower rates should boost financial stability .
Consider adding exposure to the Financial Select Sector SPDR Fund , or XLF , as banks and related industries should benefit from improved economic momentum and better lending margins .

(03:48):
Third , let’s talk bonds .
With 87% confidence in a December rate cut , longduration bonds become very attractive .
To capitalize on falling longterm yields , an opportunistic move into the iShares 20 Year Treasury Bond ETF , or TLT , can provide both income and a hedge against any unexpected economic hiccups .

(04:13):
That’s all the time we have for this edition of Spy Trader .
Stay cautious , stay liquid , and I’ll catch you next time for more cashflow insights .