The Federal Reserve finally pulled the trigger on a 25bp rate cut. No surprises there. But the real shock came after the announcement. Stocks ripped higher. Gold jumped. The US dollar slid. And traders everywhere were staring at their charts thinking… wait, what?
This was supposed to be a hawkish cut. Two members actually voted against easing. The dot plot showed no extra cuts and only one potential cut in 2026. Powell even said rates are now “near neutral,” which usually signals the Fed is basically finished lowering rates.
Normally that kind of message pressures stocks, strengthens the dollar, and sends gold into a defensive grind. But the market completely ignored the textbook playbook.
So let’s break down why everything traded the way it did… and where the opportunities are now.
Why Markets Rallied When They Should Have Pulled Back
The Fed announced forty billion dollars in Treasury purchases
This was the sleeper story of the day. Bond buying pushes yields down, and falling yields are fuel for risk assets. Lower yields ease pressure on stock valuations, soften the dollar, and make gold more attractive. The moment Powell referenced the buybacks, liquidity expectations shifted instantly.
The Fed upgraded GDP growth
Powell made it clear that consumers are still holding up and the economy is not rolling over. No looming employment shock. No recession alarms. Stronger growth combined with steady rates is a green light for risk-taking. That is why indices kept climbing even as Powell leaned hawkish verbally.
Powell dismissed the possibility of future rate hikes
Despite elevated inflation, Powell said outright that a hike is not anyone’s base case. Removing the risk of tightening gives traders confidence to stay long risk assets.
Put all of this together and the picture gets clearer. The economy is stable. The Fed is not hiking. Liquidity is improving. Markets reacted to those signals, not the cut itself.
Now What’s the Trade?
Here’s the directional outlook and exactly how traders can position themselves heading into the biggest week of December.
Stocks: S&P, Nasdaq, Dow
Major indices still lean bullish into year end. Falling yields, upgraded growth expectations, and added liquidity all provide support. If next week’s NFP and CPI come in stable or soft, stocks can continue trending higher as investors price in a smooth landing.
If the data disappoints or inflation heats up again, expect pullbacks. Triple Witching will amplify any swings.
How to Trade Stocks
Gold
Gold is following yields closely. Lower yields and a softer dollar supported today’s rally, but the metal is waiting for CPI before choosing its next direction.
Soft inflation likely pushes gold higher.
Hot inflation likely knocks it lower.
Forex and the US Dollar
The dollar weakened because tightening risks dropped and liquidity increased at the same time. That pushed USD lower against EUR, GBP and AUD.
Soft data next week? USD falls further.
Strong data? USD rebounds, especially vs JPY and CHF.
And do not forget: the Bank of Japan meets December 18–19. A potential hike could supercharge JPY strength.
Crypto (Bitcoin, Ethereum)
Crypto loves liquidity more than any other asset class. The moment Powell announced Treasury buybacks, Bitcoin and Ethereum reacted right away. If yields drift lower and risk appetite holds, crypto has room to climb into year end. But next week’s NFP and CPI will dictate the short-term trend.
Soft data fuels crypto strength.
Hot data or a stronger dollar caps upside.
How to Trade Crypto
This Is the Biggest Trading Week of December
Next week is stacked:
The Fed cut is behind us.
The reaction is behind us.
Now comes the opportunity.
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