The Santa Rally Recipe: Fed Put In Full Force

By Peter Tchir of Academy Securities

The market figured out a holiday recipe that works well:

• A Healthy Dose of Fed Puts.

• A Dash of Trade Hopes.

• A Smidge more Fed Puts because you can never have enough Fed Puts.

In the past 5 trading days (including Friday November 21st):

• The Nasdaq 100 is up 5.7% (outpacing the “rotation” trade of the S&P 500 Equal Weight which is up 3% in those same trading days).

• The probability of a Fed cut at the December meeting spiked to 83% from 35% (well within the range where the Fed would be unlikely to disappoint). 10s rallied as well, though “only” from 4.07% to 4.02%.

• Bitcoin, which traded below $82,000 on the 21st, has reclaimed the $90k threshold.

• Credit spreads joined in the party as CDX went from 56 to 51. That was matched by the Bloomberg Corporate Bond OAS, which tightened from 85 to 80.

There were a couple of other “events” during the week that created some interesting movements (at least briefly). First, and possibly most interesting longer-term, was the sudden need to understand a TPU versus a GPU.

We were able to talk about this, the Fed, and risks to the economy in the first segment of last week’s Bloomberg TV interview. The second segment focuses more on geopolitical issues.

Briefly (only briefly) did the TPU vs GPU story seem to help answer the questions posed last weekend: Is the pAIn Over? Are we at the end of “Free” Money?

Any questions on spending and risks to growth were overwhelmed by the Fed Put (and some signs that the administration would let/even encourage chip sales not just to the Middle East, but also to China).

In addition, please see the link to our November ATW that we released this week. We are focused on the U.S. pressure being put on the Maduro regime.

The Fed Put is In Full Force

You may not believe in Santa, or the Santa rally, but the Fed Put might be the strongest it has been in some time.

• The recognition that the Fed Put is in full effect started last Friday, with Williams coming across more dovish than most supposed.

• It continued over the weekend as more Fed speakers seemed to shift to the dovish side of the ledger.

• Then, finally, it was reported that Kevin Hassett would get the nod to be the next Fed chair.

  • The market, correctly, interpreted this as a signal that the Treasury, the Fed, and the admin would work more closely together – helping pave the way for lower yields and easier monetary conditions.

  • There is “chatter” that Hassett will act as a “shadow” chair at the December meeting ensuring a cut.

• The most material change in the week leading up to this barrage of dovishness wasn’t in the data, but in equity prices.

  • If you could point to some serious change in the data, we could argue that the Fed Put isn’t real, and that they are just “data dependent.” But that wasn’t the case at all. What seemed to drive the rush to get easy money back on track was the performance of equities, and the risk that they were breaking through some serious support levels, causing concern of further downside. Not something that the admin or the Fed wants – especially in an illiquid holiday season.

• The Nasdaq 100 had not broken below its 50-Day Moving Average since the rally that started with the admin retracting the Liberation Day tariffs. It crossed that technical threshold, and almost immediately fell to the 100-Day Moving Average, which it also breached (almost like a hot knife through butter). For many technicians, that put the 200-Day Moving Average in play, which would have been a further 7% decline. It is impossible, at least for me, to look at this chart and think anything other than that the Fed Put is not just alive and well, but it will also flourish under this admin. The admin did go from talking about “Main Street over Wall Street” at the time of the Liberation Day tariffs, to changing track and cheering the stock surge. The admin has continued to point to stocks as a benchmark (not truly unique to this admin, but this admin seems to have a better understanding of markets, and the machinations that can help markets, than prior administrations).

There are a few things that I find surprising about the market reaction (and the Fed hitting the “panic” button):

• I did believe the market pullback had more to do with concerns about the AI spend, than it did about the Fed not cutting in December (obviously, given the market reaction, that assessment was wrong).

• We have not wavered in our assessment that we will likely see Fed Funds effective at 2.875% (100 bps lower than today) by next summer. We did not think that whether we get a December cut or not would matter much (yes, it clearly did). The market is “only” pricing in three cuts between now and September 2026 – that seems too few/too slow. More potential for the markets to get surprised to the upside by easy money and looser financial conditions.

• There is a sense of “irony” or “paradox” or “Catch 22” (or some other word) that fears about the stock market seemed to trigger the shift to the dovish side, and now we will potentially get a cut while stocks may be at all-time highs.

Is the Fed Enough?

I do believe that the risks to spending are greater than the benefits of a 25 bps rate cut, BUT:

• December, with low liquidity and strong seasonals, tends to support strength.

• A market that was already set up for a nice end of year rally is likely to reset itself to that mindset (it is an “easy” and comfortable way to finish the year).

• The government shutdown did end, so with backpay, we could see some boosts to the economy.

• While questions are mounting about domestic AI spend and valuations, the potential for selling chips to other countries has grown in scale and scope of late.

Chips for Everyone

While the questions surrounding TPUs vs GPUs were interesting, they did little for markets. Just like DeepSeek was quickly brushed off as some “one-off” type of thing, the market continues to see demand for high-end chips as “virtually” insatiable.

While some questions remain about the longer-term risk of selling chips to competitors (like China) or even some countries that we don’t fully align with (parts of the Middle East), we seem to be set to sell those high-quality chips to those countries.

This will:

• Substantially change the trade balance with many countries. This is one of the administration’s top goals (though I’m not sure how making something in Taiwan and shipping it across the Strait to China exactly works, but it does for now – and makes, at least to me, the imperative to manufacture more and better chips in this country even more obvious – thinking ProSec™).

• Allow for growth.

• Highlight the competitive advantage other countries have in electron production. The production of electricity is increasingly recognized as a potential roadblock to the planned growth of AI and Data Centers. Countries like Saudi Arabia are better prepared for this need for electricity than we are (once again, highlighting the need for ProSec™). China too has been growing its electricity production through any and all means possible, including, but not limited to, coal, solar, nuclear, and aggressive development work on fusion.

• It is clear that the Middle East will want to buy and use the U.S. chips (designed in the U.S. even if not fully produced in the U.S.). It is less clear that China will go down that path aggressively or not. This could be a test to see if China is truly committed to developing their own industry, even at the risk of working with inferior equipment in the near-term, or whether the need is so great, that they will delay the progress of their own chip industry. The latter would be nice and a big win in the trade wars – but I’m not sure how likely it is, or whether or not we will regret the decision down the road.

Bottom Line

We can all sleep more comfortably and enjoy the holidays a little more with the Fed Put on full display. Who needs to see the tree at Rockefeller Center when the Fed Put is obvious every time we glance at our screens.

I think there are issues regarding valuations, spending, and the state of the consumer/economy, but with earnings season behind us, little “new” or useful data, strong seasonality, and a Fed that seems determined to cut, we should be in for a “normal” December – rather than what we seemed to be facing as markets started to trade on November 21st!

What a difference a week can make!

Things could change – the fears expressed recently are real, but it seems we will be given the opportunity to get our portfolio ready for the new year to capture the opportunities that are unfolding as we speak (especially making things domestically that we need for “security”).