Rate Cuts, Record Highs: Navigating the Market Divergence

Fresh news and strategies for traders. SPY Trader episode #1410. The market is driven by optimistic momentum ahead of an expected 25 basis point Fed rate cut and relentless AI enthusiasm, pushing the S&P 500 toward record highs. We analyze the massive divergence between soaring Technology stocks (XLK) and lagging defensive sectors, confirming the TINA dynamic. Strategy recommendations include core holdings in VOO and XLK, value plays in XLI and XLF, and a fixed income trade targeting TLT to benefit directly from the easing monetary policy.

Episode Transcript

(00:00):
Good morning traders , and welcome back to Spy Trader , the podcast that tells you exactly what the machines are thinking before the market even opens .
I'm your host , Barry Bullish , and it's 6 am on Wednesday , October 29th , 2025 , Pacific time .
We are kicking off the day in an atmosphere of optimistic momentum , with the S&P 500 and Nasdaq sitting at or near record highs , driven by the dual engines of expected Fed easing and relentless AI enthusiasm .

(00:31):
The riskon environment is palpable .
The main headline today is the Federal Open Market Committee meeting .
The market is overwhelmingly anticipating that the Fed will announce a further 25 basis point interest rate cut , bringing the target range down to 3.75 percent to 4.00 percent .
This policy move is crucial , designed to support growth despite inflation remaining somewhat elevated at 3.0 percent .

(00:59):
We saw huge movement in specific stocks yesterday confirming the AI trend .
PayPal , for example , soared over 15 percent premarket after beating estimates and , critically , announcing a partnership with OpenAI .
Meanwhile , United Parcel Service , or UPS , surged 12 percent on strong operational execution and costcutting progress , showing efficiency is also highly rewarded .

(01:25):
Diving into the analysis , the market is currently experiencing a massive divergence .
Technology remains the undisputed champion .
The Information Technology sector , tracked by XLK , led gains yesterday , up 0.95 percent , fueled by massive investment in digital infrastructure and AI .

(01:48):
This sector is up over 30 percent yeartodate .

Contrast that with the laggards (01:51):
Real Estate , symbolized by VNQ , dropped 2.21 percent , hammered by persistently high borrowing costs , and Utilities , down 1.64 percent , as investors rotate out of defensive names and into pure growth plays .
This is the classic TINA dynamic — There Is No Alternative — pushing capital into highgrowth megacap names like Microsoft and NVIDIA , whose shares saw premarket rises based on potential Blackwell processor talks .

We also face some headwinds (02:23):
the ongoing government shutdown is delaying vital economic data releases , making the Fed's job , and ours , tougher .
However , hopes for trade progress ahead of USChinese leadership meetings are keeping global sentiment buoyant .
Now , let’s talk trades .
Given this environment , our strategy needs to be balanced .

(02:45):
First , maintain exposure to growth but diversify slightly .
While megacap technology remains strong , the high valuation concentration in instruments like QQQ is a risk .
Instead , for your core portfolio , maintain VOO , the Vanguard S&P 500 ETF , for broad exposure , and consider the Technology Select Sector SPDR Fund , XLK , for slightly broader technology coverage beyond just the most concentrated names .

(03:16):
Second , look for value in cyclicals .
The expected rate cut and underlying corporate health , confirmed by strong reports from UPS and Caterpillar , suggest industrials are ready to run .
I recommend exposure via the Industrial Select Sector SPDR Fund , XLI , to capture growth from trade optimism and infrastructure .

(03:39):
Also , consider Financial Select Sector SPDR Fund , XLF , as banks like JPMorgan Chase will benefit if the Fed cut steepens the yield curve .
Finally , for risk management , play the fixed income duration tilt .
The anticipated rate cut is highly supportive of longduration bonds .

(04:00):
For traders seeking to directly benefit from this easing , look at the iShares 20 Year Treasury Bond ETF , TLT .
A cut today should trigger price appreciation in that instrument .
That’s all for this edition of Spy Trader .
Stay cautious , stay informed , and I’ll catch you on the next bell .