RiskOff Rotation: Geopolitics vs. Rate Cut Hopes

Fresh news and strategies for traders. SPY Trader episode #1404. The market opens cautiously amid mixed earnings and rising geopolitical risks, sparking a sharp 'riskoff' rotation. Investors are shifting from growth stocks (hit by IBM and Tesla) toward defensive sectors like Health Care and cyclicals like Energy (fueled by sanctions). Strategy focuses on buying defensive yields (XLV, VNQ), playing the crude surge, hedging with bonds (TLT), and reducing largecap tech exposure due to trade pressure.

Episode Transcript

(00:00):
Welcome back to Spy Trader .
I'm your host , Chet Cashflow , and it's 6 am on Thursday , October 23rd , 2025 , Pacific time .
The market is feeling a bit moody this morning , characterized by caution and consolidation as we try to digest a mixed earnings season and rising geopolitical risks .

(00:22):
Stock index futures are indicating a slightly weaker open , particularly for the S&P 500 and the Nasdaq100 , which are down slightly , extending yesterday’s losses .
The one outlier ?
Smallcap futures , the Russell 2000 , which are showing a modest gain of 0.37% , suggesting domestic resilience .

(00:45):
The main drivers of this morning's hesitation are geopolitical .
We have renewed USChina trade tensions , specifically targeting tech exports and weighing heavily on the broader indices , plus the cloud of the continuing government shutdown .
Despite these macro headwinds , the Q3 earnings season is actually proving resilient , with 84% of S&P 500 companies reporting so far beating analyst expectations .

(01:14):
However , disappointing results from key names have soured the mood in growth sectors .
Technology , for example , underperformed yesterday , falling nearly 1% , primarily hit by IBM plunging over 7% on soft software revenue , and Tesla dropping 3 to 3.5% premarket on mixed Q3 results .

(01:37):
On the bright side , Energy outperformed significantly , surging 1.34% , benefiting from new U.S.
sanctions on Russian oil majors that drove crude prices higher .
Health Care also showed strong defensive characteristics , lifted by Intuitive Surgical , ISRG , which surged almost 14% on strong earnings , despite Moderna falling on disappointing trial news .

(02:04):
The underlying analysis is that we are in a clear ' riskoff ' rotation .
Investors are shifting away from multinational , highvaluation momentum stocks and rotating toward defensive and cyclical value areas .
This rotation is driven by geopolitical friction clashing with the high expectation of Federal Reserve monetary easing — the market is pricing in a 96.7% chance of a rate cut this October .

(02:32):
Given this environment , the trading strategy needs to be highly selective and riskmanaged .
First , for defense and yield , focus on sectors that perform well during uncertainty .
We like Health Care ( XLV ) for its defensive strength and strong companyspecific results , and Real Estate ( VNQ ) , which benefits directly if the Fed cuts rates , making REIT yields more attractive .

(02:59):
Second , play the geopolitical environment directly .
The sanctions are boosting crude prices , making the Energy sector ( ENRS ) and related companies like SLB LTD attractive buys .
Third , exercise caution in broad tech .
We recommend reducing exposure to the Invesco QQQ Trust ( QQQ ) due to concentration risk in megacaps facing trade pressure .

(03:24):
However , for a small , highly speculative allocation , watch the quantum computing microcaps like DWave Quantum ( QBTS ) , which are surging on potential federal funding news .
Finally , for stabilization , capitalize on the expected rate cuts by adding to iShares 20 Year Treasury Bond ETF ( TLT ) or core bond funds like BND .

(03:48):
These bonds provide both a hedge against stock volatility and potential capital gains if the Fed delivers the expected easing .
That's it for this morning's Spy Trader .
Trade smart , stay nimble , and we'll catch you next time .