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“Earnings don’t move the overall market; it’s the Federal Reserve Board…focus on the central banks, and focus on the movement of liquidity…most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.” ~ Stanley Druckenmiller
Legendary investor, money manager, and billionaire Stanley Druckenmiller is arguably the most consistent investor of his time. Despite a wide variety of market conditions, Druckenmiller has produced positive returns for more than 30 years, registering only a handful of negative quarters. Druckenmiller recommends that investors focus on central bank liquidity, as that is the key driver of markets.
Investors have been uncertain about whether an interest rate cut will occur in December due to delayed or missing economic data from the recent government shutdown. However, two indicators suggest very high probabilities of a rate cut in December. The CME FedWatch tool, which uses fed fund futures pricing to estimate the likelihood of interest rate decisions, gives an 82.7% chance of a 25-bps rate cut next month. Polymarket, one of the largest betting markets, echoes those odds, putting the chances of a 25-bps rate cut at 86%.
Image Source: PolyMarket
Most Corrections Do Not Turn into Bear Markets
“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” ~ Peter Lynch
When markets begin to correct, investors often fear the worst – a full-blown bear market. Since 2009, there have been 31 corrections of 5% or more. However, only four of those corrections turned into bear markets (corrections of 20% or more), and most ended between 5% and 6%. In other words, “garden variety corrections” are common, and bear markets are relatively rare.
AI Executive Order & Tariff Dividend Checks
Earlier this week, President Trump doubled down on his efforts to ensure that the US wins the AI race by signing an AI executive order with urgency akin to the “Manhattan Project.” Clearly, the US government is getting more involved in AI, which is a bullish catalyst for Wall Street’s hottest industry. Meanwhile, Amazon ((AMZN - Free Report) ) recently announced it will invest up to $50 billion in AI infrastructure to support US government agencies. These AI investments have a snowball effect, positively impacting AI supply chain companies such as Advanced Micro Devices ((AMD - Free Report) ),Nvidia ((NVDA - Free Report) ),Bloom Energy ((BE - Free Report) ), and Coreweave ((CRWV - Free Report) ).
In addition to a burgeoning AI industry, stocks may soon get a boost from “Tariff Dividend Checks” that the Trump administration plans to send to low- and middle-class Americans. Recall that Trump’s $2k COVID stimulus checks set the markets ablaze in March 2020.
Bottom Line
While the recent correction has rattled investors, the broader landscape shows more reasons for optimism than fear. A highly probable Fed rate cut, historically benign correction patterns, and powerful catalysts in AI and consumer stimulus collectively point toward renewed market strength.
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Why a December Fed Cut Will Reignite the 2025 Bull Market
Key Takeaways
On November 5th, I wrote about how, though the 2025 bull market persisted at the time, cracks began to appear, including a “Hindenburg Omen” signal, a Fib extension target, and a poor breadth reading. Since then, the major indices have corrected, with individual stocks getting hammered beneath the surface. However, three signs paint a bullish picture into year-end:
The Fed Will Cut Interest Rates in December
“Earnings don’t move the overall market; it’s the Federal Reserve Board…focus on the central banks, and focus on the movement of liquidity…most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.” ~ Stanley Druckenmiller
Legendary investor, money manager, and billionaire Stanley Druckenmiller is arguably the most consistent investor of his time. Despite a wide variety of market conditions, Druckenmiller has produced positive returns for more than 30 years, registering only a handful of negative quarters. Druckenmiller recommends that investors focus on central bank liquidity, as that is the key driver of markets.
Investors have been uncertain about whether an interest rate cut will occur in December due to delayed or missing economic data from the recent government shutdown. However, two indicators suggest very high probabilities of a rate cut in December. The CME FedWatch tool, which uses fed fund futures pricing to estimate the likelihood of interest rate decisions, gives an 82.7% chance of a 25-bps rate cut next month. Polymarket, one of the largest betting markets, echoes those odds, putting the chances of a 25-bps rate cut at 86%.
Image Source: PolyMarket
Most Corrections Do Not Turn into Bear Markets
“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” ~ Peter Lynch
When markets begin to correct, investors often fear the worst – a full-blown bear market. Since 2009, there have been 31 corrections of 5% or more. However, only four of those corrections turned into bear markets (corrections of 20% or more), and most ended between 5% and 6%. In other words, “garden variety corrections” are common, and bear markets are relatively rare.
AI Executive Order & Tariff Dividend Checks
Earlier this week, President Trump doubled down on his efforts to ensure that the US wins the AI race by signing an AI executive order with urgency akin to the “Manhattan Project.” Clearly, the US government is getting more involved in AI, which is a bullish catalyst for Wall Street’s hottest industry. Meanwhile, Amazon ((AMZN - Free Report) ) recently announced it will invest up to $50 billion in AI infrastructure to support US government agencies. These AI investments have a snowball effect, positively impacting AI supply chain companies such as Advanced Micro Devices ((AMD - Free Report) ), Nvidia ((NVDA - Free Report) ), Bloom Energy ((BE - Free Report) ), and Coreweave ((CRWV - Free Report) ).
In addition to a burgeoning AI industry, stocks may soon get a boost from “Tariff Dividend Checks” that the Trump administration plans to send to low- and middle-class Americans. Recall that Trump’s $2k COVID stimulus checks set the markets ablaze in March 2020.
Bottom Line
While the recent correction has rattled investors, the broader landscape shows more reasons for optimism than fear. A highly probable Fed rate cut, historically benign correction patterns, and powerful catalysts in AI and consumer stimulus collectively point toward renewed market strength.