2025's Rally Awaits: How December Fed Action Could Spark Fresh Market Momentum

The market recently experienced notable pullbacks that left many investors questioning the staying power of this year’s positive momentum. Yet beneath the surface turbulence, a compelling case emerges for why the coming month could mark a turning point—and potentially reignite the broader recovery. Three interconnected factors suggest the pessimism may be overdone.

Central Bank Liquidity Remains the Primary Driver

Legendary money manager Stanley Druckenmiller has long emphasized a critical insight that conventional investors often miss: “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.”

This wisdom proves particularly relevant as we head into December. Despite recent economic data gaps caused by government disruptions, betting markets and derivatives pricing are painting a clear picture: the probability of a Fed rate cut arriving next month stands exceptionally high. PolyMarket, one of the world’s largest prediction platforms, currently prices a 25-basis-point rate cut at 86% likelihood. The CME FedWatch tool, which analyzes fed funds futures, registers a similarly bullish 82.7% probability for December action.

This convergence suggests investors shouldn’t dismiss the positive narrative just yet. When central bank policy shifts toward accommodation, historically, markets have followed—regardless of short-term noise.

Pullbacks Are the Norm; Bear Markets Remain the Exception

Peter Lynch, one of history’s greatest stock pickers, once observed: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

His observation holds particular relevance during uncertain months. Since 2009, markets have experienced 31 separate pullbacks exceeding 5%. Yet only four—just a fraction—evolved into genuine bear markets (defined as 20%+ declines). The vast majority stabilized between 5% and 6% of downside, then recovered.

In other words, recent market weakness, while uncomfortable, aligns with historical patterns that typically resolve constructively. The psychology of fear often peaks precisely when opportunity emerges.

AI Infrastructure and Fiscal Stimulus Create Dual Catalysts

The incoming administration continues signaling aggressive support for American technological leadership. Most recently, an executive-level AI directive was issued with urgency reminiscent of the Manhattan Project era, positioning government backing as a major growth engine for the sector.

Amazon (AMZN) exemplified this momentum by committing up to $50 billion toward AI infrastructure supporting government agencies. Such commitments create cascading benefits throughout the supply chain. Nvidia (NVDA), Advanced Micro Devices (AMD), Bloom Energy (BE), and CoreWeave (CRWV) stand positioned to capture significant upside from this infrastructure wave.

Beyond technology spending, the administration has signaled plans to distribute “dividend stimulus checks” to working-class Americans—a policy framework that recalls the $2,000 COVID relief payments that turbocharged markets in March 2020. Consumer spending injections have historically proven potent catalysts for equity strength, particularly during early recovery phases.

The Bigger Picture

While recent weakness has tested investor conviction, the structural backdrop appears increasingly constructive. A highly probable Fed rate cut arriving in the coming month, historically resilient correction patterns, and powerful tailwinds from AI investment plus consumer stimulus collectively suggest the pullback may represent opportunity rather than warning.

Markets don’t move linearly. But the positive case for renewed strength carries considerable weight as we approach year-end.