The Hawkish Cut: AI Leads Market into FOMC Decision

Fresh news and strategies for traders. SPY Trader episode #1451. Markets consolidate near alltime highs as attention shifts entirely to the upcoming FOMC rate decision. Technology remains the sole strong sector, driven by AI tailwinds and key stock movements in Nvidia and Broadcom. We analyze the high likelihood of a 'hawkish cut' (25 basis points) due to sticky Core PCE inflation and rising Treasury yields, outlining a strategy to leverage concentrated growth (QQQ, XLK) while using longterm bonds (TLT) as a potential hedge against yield volatility.

Episode Transcript

(00:00):
Welcome back to Spy Trader , the podcast that helps you navigate the market while everyone else is still hitting the snooze button .
I'm your host , Barry Cashflow , and it's 5 am on Tuesday , December 9th , 2025 , Pacific Time .
The market is currently in a highstakes staring contest with the Federal Reserve , consolidating near alltime highs and waiting to see which way the rate decision goes .

(00:25):
Let's jump straight into the headlines .
Yesterday saw caution across the board .
The S&P 500 and the Nasdaq Composite were both slightly lower , down about zeropointthree to zeropointfour percent , while the Dow Jones Industrial Average lagged , shedding nearly half a percent .
The big story driving performance is a massive divergence between sectors .

(00:49):
Technology , tracked by XLK , was the sole S&P 500 sector in the green , while Communication Services and Consumer Discretionary saw significant declines .
The action was all about individual stocks and AI tailwinds .
Nvidia shares climbed after receiving approval to resume shipments of its highend H200 AI chips to China under certain conditions .

(01:14):
Keeping the AI party going , Broadcom showed strength on reports that it’s in talks to supply chips to Microsoft .

Meanwhile , we saw some M&A drama play out (01:21):
Warner Bros.
Discovery shares surged on a new hostile takeover bid , causing competitor Netflix shares to decline .
On the downside , Tesla stock dropped after a major bank downgrade , contributing to the weakness in Consumer Discretionary .

(01:41):
The entire market focus is glued to the upcoming FOMC meeting concluding tomorrow .
The bond market is pricing in a near ninety percent probability of a twentyfive basis point interest rate cut , which would be generally positive for asset prices .

However , here's the caution (01:59):
Core PCE inflation remains elevated at twopointeight percent , still above the Fed's two percent target .
This suggests that while we might get the cut , the Fed's forward guidance for 2026 could be cautious .
We call this a ' hawkish cut .
' Adding to the headwind , the 10Year Treasury Yield has been rising , climbing to around fourpointoneseven percent .

(02:22):
Higher yields make bonds more competitive and increase borrowing costs , especially for growth stocks .
Our analysis shows concentrated market leadership , largely defined by the AI and technology names .
This narrow rally means the market's strength is brittle , relying heavily on just a few megacaps .
We recommend a balanced approach here .

(02:43):
First , maintain your core exposure .
Despite the caution , the S&P 500 is still near record highs .
Keep a foundational position in a diversified ETF like VOO or VTI to capture the overall market upside .
Second , target the confirmed strength Since the rally is concentrated , utilize instruments that capture that concentrated growth , such as the Invesco QQQ Trust or the Technology Select Sector SPDR Fund , XLK .

(03:14):
For individual stocks , Broadcom , or AVGO , looks compelling given the recent news regarding its potential Microsoft partnership .
Third , consider fixed income for stability .
With bond yields backed up and the Fed preparing to cut rates , longterm bonds could provide a hedge and capital appreciation .

(03:35):
The iShares 20 Year Treasury Bond ETF , TLT , is a specific instrument that would benefit if yields fall significantly in 2026.Finally , be cautious in specific sectors .
Avoid highly discretionary names or those facing companyspecific headwinds , such as the recently downgraded Tesla , or Netflix , until their competitive outlook clears up .

(04:00):
That's it for this edition of Spy Trader .
Stay disciplined , keep your powder dry , and we'll catch you on the next episode .