The Fed's interest rate cut is imminent, will it rise again in 2025?

Question

Last week, the US stock market experienced a slight pullback, and the market was a bit pessimistic. However, putting aside the noise, I found three reasons that may reignite the year-end market.

Interest rate cuts are basically a done deal.

What is the probability of the Federal Reserve cutting interest rates in December? The CME Fed Fund futures tool shows an 82.7% chance of a 25 basis point cut, and the Polymarket prediction market is about the same (86%).

The legendary fund manager Druckenmiller once said something that hits hard: “Making money relies not on stock selection, but on watching the liquidity of central banks.” In fact, this logic has not changed in the major ups and downs over the past 30 years—liquidity is the real deal. Once the interest rate cut is implemented in December, market sentiment will have a significant turning point.

Pullback ≠ Bear Market

Since 2009, pullbacks of more than 5% have occurred 31 times. However, only 4 of these evolved into a true bear market (a decline of 20% or more), with most stopping around 5-6%. In other words, small fluctuations are the norm, while bear markets are rare events.

Two Major Catalysts on the Way

The AI craze hasn't faded: This week, Trump signed an AI executive order that can be considered on par with the “Manhattan Project”, as the government is set to bet on the AI track. Amazon announced a $50 billion investment to build AI infrastructure, which will boost the entire supply chain—companies like AMD and NVIDIA will benefit from another wave of dividends.

Stimulus checks are here: The Trump administration is brewing plans to issue “tariff rebate checks” to low- and middle-income households, potentially nearing the scale of the $200 billion COVID stimulus checks from back in 2020. The wave of checks issued in March 2020 sparked the market.

Bottom line: Yes, there has been a bit of a drop recently, but looking at the bigger picture, with interest rate cut expectations + historical pullback patterns + AI + consumer stimulus working together, the possibility of a surge by the end of the year is still quite high. Instead of worrying about corrections, it's better to focus on the direction of liquidity.