The Great Market Rotation: Trading the Fed’s Dilemma

Fresh news and strategies for traders. SPY Trader episode #1447. Indices approach alltime highs, masking a significant sector rotation where Value and Healthcare are outperforming MegaCap Growth. As investors anticipate the next Fed rate cut, mixed economic signals —from low jobless claims to high job cuts —complicate the path forward. We provide three strategies to profit from the broadening rally and manage interest rate uncertainty.

Episode Transcript

(00:00):
Welcome to Spy Trader , the podcast that dissects market moves so you can maximize your momentum .
I'm your host , Benny Bucks , and it's 5 am on Friday , December 5th , 2025 , Pacific time .
We've got a busy premarket session ahead as indices hover just shy of alltime highs , but trust me , there's a furious battle waging beneath the surface .

Yesterday was mixed (00:25):
the S&P 500 inched up 0.1% , the Nasdaq Composite rose 0.2% , but the Dow Jones Industrial Average dipped 0.1% .
We are within one percent of those critical alltime closing highs , reflecting a strong year overall , but recent action suggests a significant market rotation is underway .

(00:49):
The big headline for November was the sector swap .
The MegaCap Growth dominance has taken a breather .
Technology , represented often by the Technology Select Sector SPDR Fund or XLK , was the worst performer in November , down about 4.3% .
Meanwhile , Value stocks and Defensive sectors had their moment .

(01:11):
Healthcare , tracked by the Health Care Select Sector SPDR Fund or XLV , was the best performer , soaring roughly 9.3% in November , fueled by M&A and a marketwide broadening of the rally .
Communications Services was also strong , up over 6%.This rotation isn't just theory ; we see it in the stock specific news .

(01:35):
Dollar General , a key Consumer Defensive name , rallied 14% recently after beating profit expectations , showing strength in select Value areas .
On the Growth side , Meta Platforms saw shares tick up after news broke that the company might cut spending on its costly metaverse segment , a move favored by investors concerned about capital expenditure .

(01:59):
But the true driver of caution is the Fed .
Investors are laserfocused on the December 10th meeting where markets are widely anticipating another 0.25% rate cut , which would bring the Fed Funds target rate to 3.50% to 3.75% .
However , the road to easing is getting bumpy .

(02:21):
We know core inflation is forecast around 3.1% for yearend 2025 , stubbornly above the Fed's 2% target .

Compounding the uncertainty is the labor market (02:29):
weekly jobless claims just dropped to a threeyear low , suggesting robustness , yet total job cuts in 2025 are the highest since 2020 .
This mixed data complicates the anticipated rate cut .
So , how do we trade this broadening market with rate uncertainty ?

(02:51):
We have three key recommendations .
First , capitalize on the rotation into value and breadth .
Since Value is outperforming Growth , we need exposure beyond the narrow Magnificent Seven rally .
Look to increase exposure to broad market ETFs like the Vanguard Total Stock Market ETF , VTI , which captures small and midcaps , or ride the current momentum in Healthcare using the Health Care Select Sector SPDR Fund , XLV.Second , maintain core growth exposure but view recent weakness as a buying opportunity .

(03:26):
Despite Technology’s dip in November , the underlying thematic tailwinds — especially AI — remain the primary driver of corporate investment and GDP growth .
Use the dip to dollarcost average into core Nasdaq exposure via the Invesco QQQ Trust , QQQ .
Keep a close eye on stocks like Nvidia , NVDA , which saw its fair value estimates increase significantly last month , confirming longterm strength .

(03:55):
Finally , hedge your interest rate risk .
Given the mixed economic data — strong jobless claims on one hand , high overall job cuts on the other — the path for the 10year Treasury yield is unclear .
Focus on broad , diversified fixed income holdings like the Vanguard Total Bond Market ETF , BND , to maintain stability and income while balancing your equity risk .

(04:21):
That’s all the time we have for this edition of Spy Trader .
Stay disciplined , and may your portfolio be green !