The Rate Cut Pivot: Navigating Volatility and the Defensive Shift

Fresh news and strategies for traders. SPY Trader episode #1436. This episode covers the market's recent turbulent 5% pullback and the sudden shift in rate expectations, with odds of a December rate cut now exceeding 70% due to a cooling labor market. The dominant theme is a "riskoff" rotation, favoring defensive sectors like Health Care (XLV) over highflying tech stocks (NVDA, XLK), despite strong fundamentals. The game plan suggests a balanced approach, recommending VOO for core holdings, XLV for defense, QQQ as an opportunistic buythedip play, and BND to capture appreciation from expected fixedincome easing.

Episode Transcript

(00:00):
Good morning , traders !
Welcome back to Spy Trader .
I'm your host , Morty Moneybags , and it is 5 am on Monday , November 24th , 2025 , Pacific time .
We're kicking off the week after one heck of a turbulent ride .
The market feels like it's driving in the fog , a phrase Chair Powell himself used , so let's try to clear up the view and prepare for a volatile session ahead .

(00:24):
First , let's recap the roller coaster .
Last week was rough , erasing a good chunk of gains , with the S&P 500 down about 2% for the week and the techheavy Nasdaq Composite falling between 2.7% and 3.2% , pushing the S&P 500 over a 5% pullback from its October peak .

(00:47):
However , the big news isn't the drop , but the sudden pivot in rate expectations .
Comments from the New York Fed President suggesting ' room for a further adjustment ' have caused traders to lift the odds of a December interest rate cut to over 70% .
This optimism is strong , but uncertainty remains high because a prolonged government shutdown has delayed critical economic data , complicating the Fed's datadependent approach .

(01:18):
We did get some delayed labor data showing 119,000 jobs added , coupled with an increase in the unemployment rate to 4.4% , the highest since 2021 .
This mixed picture suggests the labor market might finally be cooling enough to justify that muchdesired dovish shift .
The dominant theme right now is a clear ' riskoff ' rotation .

(01:42):
Investors are fleeing highflying growth stocks and seeking stability .
This is why defensive sectors like the Health Care Select Sector SPDR Fund , XLV , and Consumer Staples Select Sector SPDR Fund , XLP , are leading the charge in November .
They offer resilient cash flows and dividends regardless of economic turbulence .

(02:04):
On the flip side , the Technology Select Sector SPDR Fund , XLK , has been lagging significantly due to profittaking , particularly in the megacap stocks .
Take NVIDIA , NVDA , for example .
They reported fantastic thirdquarter earnings and strong forward guidance , yet the stock’s initial surge reversed , and it closed lower .

(02:27):
This highlights that even companies with rocksolid fundamentals are currently being judged harshly on valuation , fueling that ' AI bubble chatter .
' Now , it’s not all doom for tech ; Alphabet , GOOGL , saw shares rise due to momentum around their Gemini 3 AI model and data center plans , showing that selective , fundamental strength still matters .

(02:50):
Time for the game plan .
Given the current environment of high volatility and defensive rotation paired with ratecut optimism , we need a balanced approach .
First , for core diversification and mitigating singlestock risk , maintain holdings in the Vanguard S&P 500 ETF , VOO .
It captures the overall market , which is still up 12.3% yeartodate .

(03:14):
Second , for defense , look at the Health Care Select Sector SPDR Fund , XLV .
This sector offers lowervolatility returns in a slowing economy , exemplified by stable largecaps like UnitedHealth Group , UNH .
Third , for the brave , the sharp weekly loss in the Nasdaq makes the Invesco QQQ Trust , QQQ , an opportunistic ' buy the dip ' play .

(03:40):
The longterm fundamentals of major holdings like NVIDIA and Alphabet remain strong , despite the recent selling pressure .
Finally , with rate cut expectations so high , consider adding exposure to fixed income via the Vanguard Total Bond Market ETF , BND , as bond prices typically appreciate when rates ease .

(04:02):
That’s all the time we have for this edition of Spy Trader .
Stay safe out there , and may your portfolio be green !