Market's Soothing Words and Impact On Your Portfolio, LFG Daily - November 24, 2025

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The Fed’s Williams said the Fed can still cut rates in the near term, given policy is mildly restrictive. That was viewed as Fed messaging, due to his views often matching Powell’s, and got rate expectations up and got the stock market going.

The Fed’s Collins said policy is mildly restrictive, which is appropriate, and they’re hesitant to get too far ahead with rate cuts, with inflation remaining high.

Trump floated the idea of letting NVDA sell H200 chips to China. Not sure that happens and China may not be interested, anyway.

Trump is expected to sign an executive order regarding healthcare at 4, today.

The BLS cancelled October CPI. as the data was never collected. November CPI won’t be released until after the December FOMC meeting.

December rate cut odds crept up to 75%.

The price of recent AI bonds have slid, adding to investor anxieties.

Japanese markets are closed for Labor Day.

BoJ board member Masu said they are close to raising rates, it’s just a question of which month. There was also more talk of intervening on the weak yen.

Dallas Fed Manufacturing, today.

On Friday, soothing words from the Fed’s Williams caused the market to decide a December rate cut was back on the table, moving odds from under a third to 69%. Why should we care so much about one man’s opinion? Historically, Williams and Powell tend to have similar opinions, so this seems like a meaningful shift, meant to be a message to the market.

All that makes sense, given that the market was signaling the Fed was making a mistake by signaling no cut. Why would not cutting be a mistake? Inflation expectations are falling while employment worries are rising. Meanwhile, the Fed admits current policy is a bit restrictive. Cutting rates in December makes perfect sense to the market, and to me.

Is a December cut now a given? No, but it looks pretty good. I think the market percentages of 69% are pretty accurate, at this point. For that matter, we are seeing more pockets of economic weakness in employment and areas of retail, such as autos. Nothing there looks like the end of the world, as it doesn’t look systemic, but it is a weakening which should encourage a cut. As history shows, potential slowdowns can take time to play out and don’t generally go in a straight line.

Volatility has been rough this month, as high leverage and timid market maker liquidity were a toxic mix. Honestly, the market reaction seemed pretty severe to me but that makes sense given how severe the upside move has been. It’s also worth noting that in addition to the Fed-induced rate pressure, we’ve also had trouble in funding, as seen in wider SOFR spreads. This is likely as a result of the Fed shrinking their balance sheet too much to maintain the massive amount of assets created out there. Ending QT at the end of this month should help but they may need to do more.

Going forward, I’d expect the market does well. The major problem the market had was the Fed pushing against a cut, and that appears to have been solved on Friday. If the stresses we’ve seen so far in November keep going away, then the stocks that got hit most during the liquidity stress are likely to do better, perhaps much better.

The Fed broke the market for a bit there, with real rates and inflation expectations starting to move to deflationary positioning. However, they also saved it on Friday. This is a tough period, but my attitude is that the last signal, supporting the market, is the one to follow. We took minor risk-management action last week as the market finally snapped below our long-term risk band. We’re likely to add that back this week unless the market breaks down, again. We may actually add a touch more risk, soon, but I’ll talk about that more, tomorrow. For now, the market looks constructive again, arguably for the first time this month.

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