The Rate Cut May Produce A ‘Sell The News’ Event

Dec. 07, 2025

David H. Lerner

Investing Group Leader

Summary

• The anticipated 0.25% Fed rate cut is likely already priced in, setting up potential for a ‘sell the news’ event.
• I expect institutional money managers are aggressively buying into the year-end rally, especially in large-cap stocks, to catch up on benchmarks.
• A brief, sharp sell-off of up to -5% may occur post-rate cut, triggered by a potential breakout in the 10-year Treasury yield above recent ranges.
• I plan to trim expensive positions, hold 5-7% cash, and buy discounted quality names, like NFLX, SNOW, and DDOG, if the sell-off materializes.

The Rate Cut May Produce a “Sell the news” Event

The FOMC meeting this week could move the market

This week, on December 10th, it should be no surprise to anyone interested in the stock market that another rate cut of .25% will be announced (cite). The speculation lies in whether this is a hawkish cut (as in “one and down”), or a dovish cut. My take is that the Fed chair will try to couch the announcement as neutral as possible, but during the Q&A, he will appear dovish as he, in my opinion, almost always does. So what’s my problem? Chairman Powell will cut rates, and in all likelihood leave the door open for more cuts next year. Boom!. We are off to the races, we hear the jingling of bells, and the “Santa Claus Rally” gets on to a strong start. We will finish going into January over 7000! We could even see 7200 before the end of January. Most of that move will be in recognition of profit growth, and not a rise in price/earnings multiples.

So if I am taking such a bullish stance, what’s my problem?

As most of my loyal readers know by now, nearly every week, I publish an analysis where I share my thoughts memoir-style. This means that I am sharing my mindset and featuring what the most important undercurrents of the market are. Sometimes I write about individual stocks that intrigue me, but if I see a more macro-view change in the overall market, I am sharing that with all of you. My approach to generating returns is to actively manage my investments and be very mindful of where the market might be taking us. It is very difficult to be exactly right week-in and week-out, but I do believe that it is important to create a picture, and if the market deviates from that picture, then adjust tactics as the week progresses. I think that market participants have already discounted a dovish Fed.

I know that correlation is not causation, but allow me to aver that the recent strength in the market could be (in my opinion, and probably many others) attributed to the excited anticipation of this rate cut. Yes, this is the year-end period, which is widely believed to be the best time of the year, the “Santa Claus Rally”. Not only because it is Christmas or the New Year’s celebrations just up ahead, but because… well, actually, no one really knows why. To be precise, according to our friends at Investopedia.com, the rally, when it occurs, officially starts the week before December 24th (cite). The article goes on to state that some believe it lasts into the first 2 days of January.

This rally starts next week, not this week

I know the likelihood of predicting what the market will do over such a short period is a fool’s errand. I am not doing that, I am pointing out risks, and in fact, this article is a continuation of last week’s article (cite), where I did say we are likely to rally upward and that the closer we get to the old high, the more fragile this rally gets. I also opined that quite often when the price of an equity or index reaches an old high, the first attempt is not usually successful.

Money Managers/Institutions, I believe, are now part of the buying

As you’ll see on the graph below, shows the performance of the “buy side”, are meeting their benchmarks, and they are likely buying into this year-end rally, as you’ll see from the charts below it would be logical for them to push more cash into equities, possibly directly to the biggest, most liquid stocks out there – the magnificent 7. I don’t see a way that I can prove this, but if I were a money manager, that is what I would do, especially since so many of them are underperforming right now.

There are explanations for this phenomenon that do make sense in normal times, such as “window dressing,” where money managers go and buy the best-performing stocks, so their clients can see that their managers were right on top of the winners (cite). There is also a cohort of managers who did not beat their benchmarks, or even meet them. As a result, they pour all the cash that they had set aside into equities. in the hope that the market has a big finish to the year, so they can catch up. My opinion of this motivation to buy from professional money management is my opinion, but formed by years of observing the markets. Here is a very insightful chart from our friends at Bloomberg.com

The above chart might buttress the notion that money managers might be more aggressive buyers than usual.

What do I mean by sell the news?

It is half of an old Wall Street saying, “Buy the rumor, and sell the News (or Fact).” It is simply the observation that the market is forward-looking and tries to anticipate what is going to happen in the future. So, as expectations of rate cuts grew in the last several weeks, even before the November cut, it was already the accepted wisdom that there would be another cut, a .25% cut on December 10th, as I had cited in the first paragraph. The stock market index is rallying strongly in anticipation, and by the time the cut is announced, most of those anticipating this news have already put their money to work. I would say this in normal times, but with many professionals behind on their benchmarks, I believe many are piling in.

What makes me think so ? This is my opinion borne of experience. The rally this week has been very strong. This past Friday at 10:30 am, the S&P 500 reached all the way to 6895, just 25 points from the all-time high; the previous day, the market closed at 6856. That was a nice pop, but then the index started to slide almost the entire day, reaching a low of 5662 at 3:45 pm, and with only 15 minutes left, and as it was a Friday, I assumed we would end in the minus column. By assuming that Friday would be a down day, market participants tend to take some profits at the end of the week, especially when there is no particularly bullish news that day. The spike at 10 am was due to the lower PCE data, which was not super relevant since it was from September. So at that 3:45 pm mark, instead of falling further and ending in the red, buyers came in to elevate the index to 5670, and a new high end the week. What happened here? I think there were a lot of “market-on-close orders” coming in. Who normally uses market-on-close orders? Most institutional investors use market-on-close orders; typically, these orders begin to be executed about 15 minutes before the actual close. Look at this daily chart. (cite)

That jump to 5870 started at exactly 15 minutes before the close. I believe this price action buttresses the argument that Institutions are buying this rally. I was closely watching the close as I always do, and fully expected that the downtrend that started at 10.30 this morning would just continue into the close. I was pleasantly surprised by the change in direction in the last few minutes of the day. Only in the course of this writing did this occur to me. I think there will be more buying on Monday and Tuesday, and once everyone is on the bullish side of the boat, the risk on Wednesday is that selling will begin.

But wait, there’s more!

If it is just about selling the news, I doubt that it will be a very big sell-off, and may not even be sustained for a full day the following Thursday. No, there is one more macro issue that I believe will crop up and give several days of selling. Below is the 10-year US Treasury bond. Check out this chart from our friends at CNBC.com. This is a one-month chart, but I want you to look at that drop on November 27. It was on that day that the rate for the 10-year fell below 4%. Ever since that time, alongside the growing confidence that another cut was coming, the rate has climbed, reaching nearly 4.14% at the end of Friday’s close at 4.139%.

I believe the 10-Y breaks above its recent range and in proximity to the aftermath of the rate cut it will be the catalyst to give us a sharp sell-off, perhaps as much as -5%. I am going to buy that sale off. I don’t expect the rate to break above 4.25%, and after the rate settles down, the tally should continue, hitting 7,000 by year-end. If you are a buy-and-hold type, then make sure you have the resolve to stay the course if there is sharp selling. The media is going to love this unexpected news and will amplify the drama. As I am a more active type, I will trim some positions by selling my most expensive shares of those positions, and just have 5% to 7% cash set aside to redeploy. I might choose to buy the same names at a lower price, or pick up something new. I still believe that with patience, even the best names can give you a -20% discount or more, look at Netflix (NFLX)!

Early next year, the Snowball will have £1,090 to re-invest, the current plan is to switch TMPL into BRAI and 1k.

This ISA investment pays 4%+ with low risk

This type of low-risk fund could be an option to consider for ISA investors who are waiting for better stock market investment opportunities.

Posted by

Edward Sheldon, CFA

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.

A lot of investors are concerned that the stock market could be set for a pullback in 2026. That’s understandable as major indexes have had a brilliant run this year and valuations now sit at elevated levels in many cases.

Now, I don’t know if we’re going to see a market slump in 2026. But I’ve been taking some precautions just in case, putting a little bit of my ISA capital into a fund that pays 4%+ annually with near-zero risk.

Savings account-like returns

The product I’m talking about is the Fidelity Cash fund. It’s available to consider on Hargreaves Lansdown and many other investment platforms.

This is a money market fund, meaning that it invests in high-quality, short-term bonds and cash equivalents to generate a small but predictable return. Currently, it has a distribution yield of around 4.5%. And because of the types of investments it makes, the overall risk profile of the cash-like portfolio is very low.

However, even a low-risk fund isn’t entirely risk-free. If we saw another event like the 2008/09 Global Financial Crisis and financial liquidity froze, for example, this fund may not deliver the returns investors are expecting. However, for all intents and purposes, it’s similar to a high-interest savings account (there’s no FSCS protection).

Note that on Hargreaves Lansdown there’s a range of these funds. Some other examples include the Vanguard Sterling Short-Term Money Market fund and the Legal & General Cash fund.

Better than a Cash ISA?

Why not just stick my money into a Cash ISA? Well, the beauty of this product is that if stocks were to slump, I could sell out of it and quickly deploy my capital into investments with more potential within my Stocks and Shares ISA.

In other words, it gives me far more optionality than a Cash ISA. With a Cash ISA, I’m stuck in cash for good and that doesn’t appeal to me as earning less than 5% a year over the long run isn’t going to do much for my wealth.

Returns of 15% a year

As an example, let’s say the market pulls back in the second quarter of 2026 and my favourite investment trust Scottish Mortgage (LSE: SMT) falls 10%. In this scenario, I could quickly sell my Fidelity Cash fund and redeploy the capital into the growth-focused investment trust.

Taking a five-year view, I reckon this product is likely to outperform the Fidelity Cash fund and other cash savings products (eg Cash ISAs) by a wide margin. After all, its top holdings include the likes of Amazon, Nvidia, Taiwan Semi, and SpaceX – which all look set for strong growth in today’s digital world.

Note that over the last decade, the share price of this investment trust has risen about 300%. That translates to a return of about 15% a year.

I’ll point out that this trust is volatile at times due to its growth focus. To enjoy those 15%-a-year returns, investors have had to tolerate some wild share price swings.

I think it’s worth a look though, especially if there’s some market weakness. I see a lot of potential in the long run.

Name TIDM Type Payment Date Amount Yield
Thu 11th December 2025

Aberdeen Equity Income Trust PLC AEI Advance 16/1/26 5.90p 5.8

Chelverton UK Dividend Trust PLC SDV Advance 8/1/26 2.50p 9.4

Henderson High Income Trust PLC HHI Advance 30/1/26 2.77p 5.7

NewRiver REIT PLC NRR Q2 30/1/26 3.10p 8.1

Patria Private Equity Trust PLC PPET Advance 23/1/26 4.40p 2.7

Personal Assets Trust PLC PNL Advance 23/1/26 1.40p 1.05

Sirius Real Estate Ltd SRE Q2 22/1/26 2.80p 5.3

TR Property Investment Trust PLC TRY Q2 8/1/26 5.75p 4.9

The current pair trade, where a lower yielding share is pair traded with a higher yielding share to maintain a blended yield of 7%, is TMPL.

I intend to switch in the near term the holding into BRAI yielding 6%, as the Snowball is currently underweight with America.

The Snowball has accrued 3k into TMPL, so after the switch if BRAI fell the Snowball would get more shares for its money although the dividend of 6% is based on the NAV, so the actual income could fall in the near term.

Change continent to Renewable Sector

SDCL Efficiency Income Trust plc

(“SEIT” or the “Company”)

Announcement of Interim Results for the six-month period ended 30 September 2025

SDCL Efficiency Income Trust plc (LSE: SEIT) (“SEIT” or the “Company”) today announces its financial results for the six-month period ended 30 September 2025.

There will be a virtual presentation for analysts and investors at 9.30am today. To register, please follow this link: SEIT 2026 Financial Year Interim Results | SparkLive | LSEG

The Company’s full Interim Report and Financial Statements for the six-month period ended 30 September 2025 can be found on the Company’s website: Share price & latest news | SEIT . This has also been submitted to the National Storage Mechanism and will be available shortly at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

Highlights

·      Net Asset Value (“NAV”) per share of 87.6p as at 30 September 2025 (31 March 2025: 90.6p), reflecting more cautious valuation assumptions amid market volatility.

·      Portfolio valuation of £1,172 million as at 30 September 2025 (31 March 2025: £1,117 million).

·      Investment cash inflow from the portfolio of £58 million during the period (September 2024: £48 million), including capital receipts from Onyx.

·      Profit before tax of £2 million for the six months ended 30 September 2025 (September 2024: £35.1 million).

·     Aggregate dividends of 3.18p per share declared for the six months ended 30 September 2025, in line with guidance.

·      Dividend cash cover of 1.2x for the six months ended 30 September 2025 (September 2024: 1.1x).

·      Target dividend guidance remains 6.36p per share for the year to March 2026.

·      Gearing at 71.9% of NAV as at 30 September 2025, above the Investment Policy limit; disposals underway to reduce leverage.

·      Disposal progress includes sale of ON Energy at an 18.75% premium to NAV and exclusivity agreed on a further disposal expected around year-end.

·      Portfolio EBITDA of c.£44 million for the six months to June 2025 (calendar year 2024: £86 million).

·      Weighted Average Levered Discount Rate of 9.7%, marginally up from March 2025.

Tony Roper, Chair of SEIT, said:

“The portfolio is broadly performing in line with expectations, yet we have seen little improvement in sentiment towards SEIT’s segment of the investment trust market in the past six months. We are acutely aware of the need to dispose of assets in order to reduce gearing levels, notwithstanding the challenging environment for asset sales. Our priority remains to make disposals but also to take action to find an alternative to the status quo, whilst ensuring that we deliver value for all shareholders.” 

Jonathan Maxwell, CEO of SDCL, the Investment Manager said: 

“SEIT’s portfolio continues to perform and its commercial, industrial and district energy assets are now well positioned for growth. While a cautious approach has been taken to valuation at this stage, we have signposted several examples of substantial opportunities for gain.

“Our priority in the short term is to achieve well executed disposals, working closely with the Board, to reduce gearing. However, given the discount to net asset value at which SEIT’s shares trade in the market and the sectoral constraints on accessing capital, we are also actively developing proposals to affect structural change to unlock value for shareholders”.

Is the FTSE 100 gearing up for its latest Santa Rally?

Wednesday, December 3, 2025

Russ Mould

Investment Director

Since its launch in 1984, the FTSE 100 index has gained 2.1% on average in December, whereas April and July are the only other months to offer an average advance of 1% or more.

If you want to know why markets talk about the Santa Rally, that is why – because the numbers back it up. Quite why the Santa Rally should occur is less clear.

Investors used to talk about ‘the January effect,’ as money managers put clients’ money to work and into the market in the new year, but since 2000 the FTSE 100 has only advanced 10 times in 25 attempts in January and has chalked up 15 losses, so that may be the end of that.

It is possible that the Santa Rally has developed because investors have looked to anticipate the January effect, and price it in or discount it. But for all its apparent reliability – the FTSE index has fallen just nine times in December since 1984 and only six times since 2000 – the Santa Rally is not certain to offer anything more than festive cheer because it does not seem to be a particularly reliable indicator for the following year.

The FTSE 100 has served up 11 annual losses since 1984 and 10 of those came after a gain in the December of the previous year – the only exception was 2015, whose 4.9% annual decline came after a 2.3% slide in December 2014.

If anything, some of the best Decembers have led to the most treacherous subsequent years. A buoyant festive season in 1993 was followed by 1994’s Fed rate rise shock, 1989’s knees-up let investors stumble into a recession and a bear market, while 1999’s party led to the hangover that came with the collapse of the technology bubble in 2000.

If nothing else, that may back up Warren Buffett’s old aphorism that: ‘The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.’

By contrast, some grim Christmases – 1985, 1990, 1994, 2002 and 2018 – have been followed by cheerful years.

Without wishing to tempt fate, 2024’s dismal December does not seem to have held back 2025 in any way. The FTSE 100 fell by 1.4% in December last year, but the index is up by 18.9% as of the end of November and on course for its seventh-best capital return in its 42-year existence.

In this respect, a joyless festive season for the stock market does not necessarily mean investors will be left with just a lump of coal in the following calendar year.

What’s your idea of a perfect investment?

It depends on whom you ask, of course. But those looking for market-beating returns, along with superior income over time, will want to own investments that combine:

• Yield
• Growth
• Value
• Safety

Not everything needs to be perfect, but if an investment enjoys a good mixture of these characteristics, it is likely to be a big winner in the long run. Naturally, it is very rare to find such opportunities because if an investment is really that great (without major caveats), it will likely trade at a high valuation and low dividend yield.

Why Become a High Yield Investor?

Dividend stocks have historically outperformed non-dividend-paying stocks. Taking this a step further, dividend-growing stocks have also outperformed other dividend stocks.

We believe that earning a steadily growing ~6% yield not only leads to higher returns but also helps you remain patient and disciplined during times of volatility.

However, investors still need to be mindful of risks and balance them against growth expectations. Many high yield investors make the mistake of chasing the highest yield, sacrificing safety and future growth. From our experience, this is almost always a mistake. It is far better to earn a safe and growing 6% yield than a risky and flat 9% yield. In fact, high yields are often the market’s way of signaling that a dividend is at high risk of being reduced or eliminated.

At High Yield Investor, we focus on finding the right balance between safety, growth, yield, and value. Achieving this balance can materially improve your investment results.

Sure, you could invest in a dividend-oriented ETF and be done with it, but you might leave a lot of money on the table. As we explain in our Introductory Course to high yield investing, such ETFs have several flaws. They are heavily exposed to companies paying unsustainable dividends. They also invest in many poorly managed companies with conflicting interests and blindly allocate to challenged sectors like malls, airlines, and movie theaters.

In short, dividend ETFs rely on passive indexing, which is inherently a backward-looking approach to investing. It’s a strategy that focuses on the rear view mirror rather than the road ahead.

Sorry boys and girls, navel gazing not naval gazing.

For any new readers, where have you been ?

The target for 2026 is income of 10k, to be re-invested to earn more dividends to be re-invested to earn more dividends. On all current information it’s likely the target will be exceeded but the target remains 10k.

The first full year of dividends for the Snowball were earned in 2023, so the Snowball could be 3 years ahead of the plan.

The exciting part is if the Snowball earns £10,441.49, then it would be less than 8 years** where the income could be £17,844.00, which is nearly 18% a year, which you could use to pay your bills or continue to re-invest.

• ** Subject to be able to re-invest at least 7%.