December Fed Rate Cut: The Catalyst for 2025's Next Bull Market Wave

Since early November, market technicals have flashed warning signs—a Hindenburg Omen signal, extended Fibonacci targets, and deteriorating breadth suggested the bull market’s momentum was fading. Yet beneath the surface turbulence, three converging factors suggest the current correction is merely a prelude to renewed strength heading into 2025.

Liquidity Flows Trump Everything Else

Legendary investor Stanley Druckenmiller once observed that “earnings don’t move the overall market; it’s the Federal Reserve Board.” His decades-long track record of consistent returns underscore a critical truth: central bank liquidity is the true market driver, not corporate profits or economic statistics.

This principle becomes crucial as we approach December’s Federal Reserve decision. Despite recent government shutdown delays clouding economic data, market odds overwhelmingly favor a rate cut. The CME FedWatch tool, which prices Federal Reserve futures contracts, assigns an 82.7% probability to a 25-basis-point rate cut in December. Even the prediction market Polymarket echoes this conviction, pricing a 25-bps cut at 86% odds.

When the Fed cuts rates, it injects liquidity into financial systems—cash seeks returns, and equity markets become increasingly attractive. This mechanical flow has historically reignited bull market periods after temporary pullbacks.

Corrections Are the Rule; Bear Markets Are the Exception

Peter Lynch famously warned that “more money has been lost preparing for corrections than in corrections themselves.” Yet many investors conflate normal market pullbacks with genuine bear markets.

The data reveals a clear pattern: since 2009, equity markets have experienced 31 separate corrections of 5% or greater. Of these, only four escalated into genuine bear markets (defined as 20%+ declines). Most corrections resolved between 5-6% drawdowns—what professional traders call “garden variety” pullbacks.

The current correction, while uncomfortable, follows this historical template. Statistically, a return to bull market territory is far more probable than further deterioration.

AI and Fiscal Stimulus: The Twin Growth Engines

Two policy catalysts are materializing that could accelerate the 2025 bull market’s upward trajectory.

First, the Trump administration recently issued an AI executive order framed with “Manhattan Project” urgency, signaling government prioritization of AI dominance. This policy backing compounds private sector efforts—Amazon announced a $50 billion commitment to AI infrastructure supporting federal agencies. This cascade effect ripples through the supply chain: semiconductor companies (AMD, Nvidia), power infrastructure (Bloom Energy, Coreweave) all benefit from the accelerating AI capex cycle.

Second, the administration is preparing “Tariff Dividend Checks” targeting low- and middle-income Americans. History provides a template: Trump’s $2 trillion COVID stimulus in March 2020 triggered explosive market rallies. Consumer spending from direct checks typically finds its way into equities, whether through direct purchases or index fund contributions.

The Convergence Case

The bear market narrative assumes Fed tightening, deteriorating technicals, and policy uncertainty will persist. Instead, incoming evidence suggests the opposite: a high-probability rate cut restoring liquidity, historically-normal correction patterns pointing toward recovery, and two catalysts (AI infrastructure spending and consumer stimulus) providing fresh growth narratives.

While market corrections will always create uncertainty, the risk-reward landscape increasingly favors bull market participants over cautious sideline watchers heading into 2025.