Small Cap Surge: Your Fed Pivot Strategy

Fresh news and strategies for traders. SPY Trader episode #1444. The market consolidates recent gains as investors await critical economic data, driven by high certainty (8085%) of a December Fed rate cut. Smallcap stocks surged, signaling renewed risk appetite. We analyze this dovish pivot and outline a strategy balancing core growth (QQQ) with ratesensitive exposure (VNQ, TLT) and international hedging (VXUS) to capitalize on lower borrowing costs and global outperformance.

Episode Transcript

(00:00):
Good morning , Spy Traders !
It's Midas Mike here , and welcome back to the only podcast dedicated to navigating the volatility of the S&P 500 and beyond .
It's 5 am on Tuesday , December 2nd , 2025 , Pacific time , and we are kicking off December after a massive , lateNovember sprint .

(00:21):
Right now , the market is mixed and cautious , consolidating those big gains as we wait for critical economic data .
After a strong weekly rally , major indices slipped in the last session .
The S&P 500 dropped about half a percent , the Nasdaq Composite , proxied by QQQ , slipped 0.4% to 0.7% , and the Dow fell nearly 0.90% .

(00:47):
This profittaking suggests investors are nervous , but the underlying narrative — a Federal Reserve pivot — is stronger than ever .
The biggest story this week isn't the pause in tech , but the surge in smallcap stocks .
The Russell 2000 , which reflects smaller companies , advanced a whopping 5.52% in the week ending November 28th , significantly outperforming largecap peers .

(01:12):
This movement is a clear signal that risk appetite is returning , driven by hopes for lower interest rates .
In the company news , megacap tech like Apple and Nvidia remain key anchors , swinging the Dow and Nasdaq daily , although Nvidia's recent earnings provided a sigh of relief for the AI growth narrative .

(01:33):
Meanwhile , in the retail space , retailers like Walmart are noted as gaining ground as consumers lean toward discount options during the holiday shopping season .

The ' Why ' behind all this action is crystal clear (01:43):
the Fed .
Market bets are overwhelmingly pricing in a rate cut — we're talking 80% to 85% certainty for a 25 basis point reduction at the upcoming December Fed meeting .
This dovish pivot is being driven by signs of softening retail sales and a cooling labor market .

(02:06):
The expectation of lower rates is reshaping the entire investment landscape .
Real Estate , proxied by ETFs like VNQ , and LongTerm Bonds , like TLT , are suddenly highly attractive .
Real Estate was crushed during the highrate cycle , but analysts are now projecting an average 12month upside of 16.66% for the sector as borrowing costs fall .

(02:31):
Furthermore , we are seeing powerful geographical diversification benefits .
Developed International Equity , tracked by Vanguard's VEA , is up 24.3% yeartodate , significantly outperforming the S&P 500’s 16.4% , showing that smart global exposure is paying off .
So , how should we trade this pivotal environment ?

(02:54):
We need to balance growth with ratesensitive exposure .
First , target those ratesensitive assets .
The expected Fed cut makes Real Estate and LongTerm Bonds key buys .
Specifically , consider the Vanguard Real Estate ETF , VNQ , which will benefit directly from reduced borrowing costs .

(03:15):
Also look at the iShares 20 Year Treasury Bond ETF , TLT .
While volatile , its long duration means it will see the largest price appreciation if the Fed cuts rates deeper into 2026 .
Second , maintain your core growth exposure while hedging with international positions .
Keep your core position in Invesco QQQ Trust , QQQ , to capture that essential AI and technology trend , but initiate or overweight international exposure using the Vanguard Total International Stock ETF , VXUS .

(03:50):
International outperformance provides a great hedge against potential US market overvaluation .
Finally , use broad bond funds for stability .
Maintain core fixed income exposure using the iShares Core U.S.
Aggregate Bond ETF , AGG .
These funds provide crucial lowvolatility anchoring to your portfolio and have already delivered moderate positive returns in anticipation of rate easing .

(04:17):
That’s all for this morning , Spy Traders .
Stay nimble , and I’ll catch you at the closing bell !