To The Moon

🌟🌟🌟As we approach the final FOMC meeting of 2025 on December 10, the air in the market is thick with anticipation and anxiety.  Investors have been on a roller coaster for the past 2 months , repositioning for an easing cycle that has been anything but a foregone  conclusion.  This volatility is amplified by another more ominous risk , whispering through global finance : the potential unwinding of the yen carry trade.

Is the 25 BP rate cut a done deal?

While recent data and comments from key Fed officials have tilted expectations heavily toward a cut, it is not 100% certain.  Market probabilities are pricing in 85% to 90% chance of a 25 basis point cut, bringing the Federal Funds rate to a target range of 3.5% to 3.75%.

However the committee is reportedly divided .  Chair Jerome Powell previously stated that the decision is far from a foregone conclusion.  The lack of recent , complete data due to government shutdowns adds another layer of uncertainty.  This may mean a surprise Hold is a small but real possibility.

Can the market continue to rise once the cut is delivered?

The high volatility leading up to the decision reflects a market trying to price in the rate cut without knowing the Fed's future intentions .  Historically the answer to whether the market continues to rise after the first cut depends heavily on the economic context.

If a recession is avoided:  When the Fed cuts rates during an economic expansion, stocks have typically performed well in the following months with the S&P500 averaging returns of around 14% after the initial cut.

The immediate reaction: The market's immediate reaction on December 10 will hinge more on Jerome Powell's press conference and forward guidance than the cut itself.

If the Fed delivers a hawkish cut , cutting rates but signalling a pause or slower pace of cuts in 2026, the market could remain flat or even dip initially, as this outcome is not fully priced in .

How should we think about rate cuts in 2026? And the Japan carry trade risks ?

The market is currently pricing a gradual easing cycle for 2026 but the dot plot and Powell's commentary will be crucial.

This is where the Japan carry trade risks intersect with Fed policy.  A US rate cut could inadvertently strengthen the yen by narrowing the interest rate differential with Japan.

The Yen Factor : A strengthening yen can force global investors who borrowed yen at low rates to invest in higher yielding assets to unwind their positions.  This unwind requires them to sell global stocks and convert the proceeds back to a now more expensive yen to repay loans.  This could create a significant global liquidity shock and downward pressure on US stocks , particularly riskier ones.

2026 Outlook: The dual threat of central bank policy shifts and currency risks points to continued volatility.

My Strategy: The Long Game

Despite the short term drama and lurking risks, the long term history of the market is clear.  The trend is generally upwards.

My strategy remains simple and disciplined.  I will be taking a long position and employing Dollar Cost Averaging or DCA into broad index ETFs like $SPDR Portfolio S&P 500 ETF(SPYM)$ and $STI ETF(ES3.SI)$  .

This approach allows me to navigate the immediate uncertainties, leverage the power of compounding and capture the long term growth of the market , regardless of the immediate noise from FOMC or the currency markets.

Concluding Thoughts 

In essence December 10 is a pivotal moment.  However the true impact on the markets will depend on the nuances of the Fed's message about the path ahead .  

In times like this it is worth remembering Warren Buffett's famous saying that perfectly captures the sentiment for a long term investor:

Be fearful when others are greedy and greedy when others are fearful.

This December 10, while others are fearful, a disciplined long term investor sees opportunities for patient accumulation.

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