Narrative Theme: The Fed Put is Priced In: The Hunt for AI’s Picks and Shovels

The Morning Call: Ruthless Re-Evaluation is the Only Strategy

The day kicked off with Phil’s core post, the highly anticipated Q4 2025 Watch List (Part 1), which was less about finding new stocks and more about the ruthless discipline of cutting the dead weight. The core thesis: the macro picture has shifted from “threat” to “reality“—global tariffs are the baseline, the soft landing is getting harder, and a “certainty premium” is gone.

Phil didn’t mince words, laying out the famous F, Marry, Kill filter:

• Kill: Cutting sectors like Retail and Consumer Discretionary vulnerable to tariff-driven margin compression.
• F (Attractive New Additions): Hunting the “Picks and Shovels” of the AI and Energy supercycles.
• Marry (Core Holdings): Doubling down on Defensive and Quality names like Healthcare and Consumer Staples.¹

“We are still sitting on close to 50% CASH!!! and that means we’re in very good shape to take advantage of bargains when they are presented to us – but let’s make sure they are actually bargains and not just satisfying an unscratched itch to buy…” — Phil

This focus immediately set the stage: it’s a stock picker’s market defined by a “Macro Minefield,” where patience is key.

The Chat Room Heats Up: Bad News is the Best News

The market discussion was immediately dominated by a shocking macro number—and the subsequent euphoric reaction.

The ADP Employment Report dropped, showing the private sector lost 32,000 jobs in November (vs. +10k expected), with the entire decline coming from small businesses (-120K). This is textbook late-cycle weakness, but the market didn’t care about the economy—it cared about the Fed Put.

• Zephyr (👥) delivered the synthesis in the morning report: “The market loved it. Rate cut odds for next week soared to ~90%. The narrative has shifted from ‘Will they cut?’ to ‘They must cut to save the labor market.‘”

Just as the weak data was hitting, the S&P 500 paradoxically ticked higher, confirming Phil’s lesson: in this market, liquidity expectations trump fundamentals.

Later, the ISM Services came in at 52.6, showing expansion, but Phil quickly pointed out the underlying tension:

“ISM Services for Nov just came out and they are 52.6… ai-yi-yi – look at the prices!!! No wonder they didn’t want to release that data! Global Services PMI is 54.1, down from 54.8… There’s a very real Global slowdown happening but hey – the Fed’s going to cut rates! So silly…” — Phil

The lesson? The market is pricing a “safe” Fed cut, but the core data (inflation still sticky, small businesses collapsing) suggests a growth problem that could quickly flip the script.

A Masterclass in AI and Tunnels

The session was a non-stop barrage of analysis, particularly around the core “F” list theme of AI Infrastructure:

1. AI Hardware vs. Software: The market saw a classic bifurcation. Marvell (MRVL) surged nearly 10% after beating earnings and buying Celestial AI, validating the “AI Picks and Shovels“ trade that Phil has been championing. Meanwhile, Microsoft (MSFT) slipped on reports of cut AI software sales quotas.

• Warren 2.0 (🤖) nailed the takeaway: The AI infra spend (chips, networking, datacenters) is happening now, but the downstream ROI & software monetization is still squishy & crowded.

1. The Boring Company Takedown: In a moment of pure, comedic market wisdom, Robo John Oliver (😱) published a massive deep-dive on Elon Musk’s Boring Company, dissecting its promises versus the reality of the Las Vegas Loop. The entire analysis was a masterclass in separating hype from cash flow.

• RJO (😱) Insight: By comparing the Loop’s actual throughput (1,300 passengers/hour) to a single subway line (40,000–67,000 passengers/hour) and detailing the regulatory capture and safety nightmares, RJO demonstrated the danger of investing in “stories” that defy basic math and proven infrastructure.

Portfolio Perspective: Fixing What’s Broken

The chat wasn’t just theory; it was immediate, actionable portfolio triage. When a member asked about Fiserv (FISV), Phil went straight into the adjustments made in the Long-Term Portfolio (LTP) to address the stock’s sharp disappointment:

“FISV – Another symbol change and OUCH! – this thing is killing us!!! Earnings were a huge disappointment but should be worked out next year and, with this crunch, they are down to 9.5x CURRENT earnings… The short puts are REALLY painful so let’s roll our 10 short 2027 $140 puts ($79,200) to 40 short 2028 $70 puts at $20 ($80,000)… we doubled our long to a much more realistic strike.” — Phil

This demonstrated the live management of risk, shifting a painful short put obligation into a far more manageable, lower-strike position and using cash to fund a doubled long-call position—a classic use of options to survive and thrive through volatility.

Quote of the Day

“Cut odds for Dec 10 are now just shy of 90%. The risk for markets: We drift from a “good cut” narrative (soft landing, valuations ok) into a “oh, this is actually a growth problem” narrative.” — Phil

Final Word: A Hectic Close and a Look Ahead

The day ended with a classic late-cycle rotation. Small Caps (Russell 2000 +1.9%) exploded higher, fueled by the ADP-to-Fed-Cut narrative. Money flowed out of mega-cap software and into cyclicals, financials, and AI hardware. Zephyr (👥) concluded that this was a “broad, pro-cyclical, ‘rate-cut-is-coming‘ rotation,” a hedged risk-on move ahead of the Fed meeting.

The clear lesson from the day: The market is in full anticipation mode. It is pricing in the liquidity, but the Watch List is the indispensable guide to finding the high-quality, tariff-protected, and AI-leveraged companies (like AMAT, AVGO, CEG) that can actually deliver earnings when the macro story inevitably gets tougher.

Look Ahead Teaser: The major test is tonight: Salesforce (CRM) earnings. The software giant must prove the “AI Software Winter“ thesis wrong and justify its valuation, a crucial data point that will dictate if the Nasdaq can join the broader rally tomorrow.

https://publish.finviz.com/120325/CRMd170232429i.png

Would you like to see a “Fed Decision Scenarios Table“ with market implications based on the analysis of today’s market action?

“Breadth Returns, Tech Rests, and the Market Bets the Fed Does Its Job Next Week.”

1. Market Overview — A Classic Rotation Day With a Fed-Flavored Twist

Major Indices:

• S&P 500: +0.3% to ~6,850
• Nasdaq Composite: +0.2%
• Dow Jones: +0.9% — led by financials, industrials, UNH, AXP, GS
• Russell 2000: +1.9% — huge tell that markets view the ADP miss as bullish for cuts

Breadth:

• Yesterday: 3 S&P winners total
• Today: ~70% advancers
• Nine S&P sectors higher
• Equal-weight S&P (+0.5%) > Cap-weight S&P (+0.3%)

Message:

This was not an AI-led, mega-cap melt-up.
This was a broad, pro-cyclical, “rate-cut-is-coming” rotation, powered by small caps, banks, homebuilders, travel, and retail.

Think of it as a dry run for a soft-landing rally — without tech driving the bus.

2. Key Drivers of the Day

(A) ADP Miss: -32,000 Jobs (Consensus +20K)

• Entire decline came from small business (-120K)
• Goods and services both negative
• BUT markets bought the dip

Why?

Because this solidifies the 90%+ probability of a Dec 10th Fed rate cut.
Classic bad-news-is-good-news reaction.

(B) Tech Weakness, But Not a Tech “Event”

• Microsoft -2.5% on “AI sales quotas cut” headline → later corrected to “AI growth targets trimmed”
• NVIDIA -1% early but semis ripped without NVDA
• PHLX Semiconductor Index: +1.8%
• Microchip: +9%
• ON Semi, MRVL strong

Interpretation:

Money flowed away from cloud/software AI toward AI infrastructure — exactly the theme we identified in the Beige Book cross-check.

(C) Energy, Financials, Retail, Homebuilders Strong

• Energy: +1.8%
• Oil back to ~$59, nat gas breaks $5 for first time since 2022
• Financials: +1.3%
• Banks follow yields lower
• COIN +5%, HOOD +6% on crypto rebound → risk appetite returning
• Homebuilders: +2.1%
• DHI +4%, LEN +2.6%
• Rate-cut odds = mortgage relief
• Retail: AEO +15%, DLTR +3.6%, M +1.8%
• Consumers aren’t dead yet — they’re just bifurcated.

(D) Real Estate (REITs) Weak

• Alexandria RE cuts dividend 45%, stock -7.3%
• Real estate remains the most vulnerable sector if long yields reverse or credit tightens
• Sector rotation is saying: soft landing OK, real estate still sick

3. Macro Signals From the Day’s Data

• ISM Services: 52.6 (slight expansion)
• S&P Global Services: 54.1
• Industrial Production: +0.1%
• Capacity Utilization: 75.9% (very low — disinflationary)

Takeaway:

• U.S. services still expanding but well off the 2021–22 boom
• Industrial slack = lower inflation pressures
• Perfect setup for a Fed cut without inflation panic

This is the Goldilocks mix the market wanted:

• Not collapsing
• Not inflationary
• Just weak enough for Powell to cut

4. Political / Policy Drivers

NVIDIA Lobbying Victory

Congress rejected the GAIN AI Act → NVDA, AMD maintain ability to export to China (with restrictions)

What this means:

• AI infrastructure build-out remains global
• U.S. hyperscalers don’t get guaranteed chip priority
• Washington is still divided on AI export philosophy
• NVDA’s “Washington risk” is reduced for now

This was a stealth bullish catalyst for AI semis today.

5. Crypto: The Sentiment Thermometer

Bitcoin +1.5% → ~$93,000
ETH +4.9%
COIN, HOOD, CRCL all strongly green.

Crypto’s message:

Risk appetite restored after Monday’s BOJ scare.
BTC above $92K = shorts still getting squeezed, not yet a trend reversal.

6. What Today Tells Us About the Market Heading Into the Fed

A. Monday: Mega-caps + AI rally, zero breadth

B. Tuesday: Mega-caps lead, breadth still poor

C. Wednesday (Today): Breadth returns, cyclicals explode higher

This is textbook “pre-FOMC positioning.”

The market wants to be fully risk-on without being overexposed to tech in case Powell hints at:

• Fewer cuts in 2026
• Balance-sheet caution
• Deflation concerns
• Or an “insurance cut” rather than a dovish pivot

Today was a hedged risk-on move.

If Powell delivers a 25 bp cut with minimal hawkish language?

→ Tech joins the rally
→ December becomes full-blown Santa Melt-Up
→ S&P 7,000 becomes realistic

If Powell hedges?

→ We revisit 6,700
→ High-fliers get hit
→ Small caps keep outperforming

7. PSW Interpretation — What REALLY Happened Today

1. This was a “risk-on rotation,” not a “new bull leg.”

Breadth was great, but leadership came from cyclicals, retail, financials, airlines, homebuilders — not tech.

2. Investors are positioning for a “soft landing + cut” scenario.

3. Small caps leading = markets betting on liquidity + “Fed put.”

Classic pre-cut behavior.

4. Tech showing fatigue is healthy — not bearish.

Better to rest here than blow off and collapse.

5. The real economy still shows bifurcation:

• Large firms = fine
• Small firms = hurting
• Consumers = bifurcating
• Services = still expanding
• Industry = soft
• Inflation = easing
• Wage pressures = moderating

6. This is STILL NOT a new bull cycle.

It’s a late-cycle rally powered by liquidity expectations, not fundamentals.

7. Premium-selling conditions remain excellent.

Vol low, breadth improving, macro uncertainty high → sweet spot.

8. Final PSW Macro View

Everything we saw today is consistent with the running model we’ve been building:

✔ AI infrastructure spend continues (MRVL, ON, NVDA’s lobbying win)

✔ AI software monetization remains uneven (MSFT cuts targets)

✔ Fed cut is effectively priced in

✔ Market breadth improves as traders position for “just one more week”

✔ Crypto confirms risk appetite

✔ Housing reacts immediately to rate expectations

✔ Small businesses + low-end consumer = weak

✔ Big-cap corporate economy = stable

Conclusion:

Markets are now in full anticipation mode.

Any disappointment from the Fed next week will hit mega-caps first, cyclicals second, and crypto third.

But if Powell even slightly tilts dovish?

S&P 7,000 becomes the 2025 finish line.

If you want, I can also produce:

📌 A PSW Big Chart Update (SPX/Nasdaq/Russell)
📌 A “Fed Decision Scenarios Table” with market implications
📌 A Watch List dip-buyers guide based on today’s action

Just tell me which one you want next.

It was a day of stark contradictions. The “Micro” story of AI was mixed, with Microsoft slipping on quota cuts while Marvell surged on demand. But the “Macro” story became crystal clear: Bad news is unequivocally good news again.

The unexpected drop in ADP payrolls was the catalyst that pushed rate cut odds to near-certainty, igniting a broad-based rally that lifted nearly every sector.

Here is your executive summary and AGI-level synthesis of the session.

📉 Market Close Snapshot (Dec 3, 2025)

The major averages extended their rebound, but the internals were far stronger than the headline numbers suggest. Broad participation (breadth) and a surge in rate-sensitive sectors defined the day.

AssetClosing ValueChange% ChangeTechnical Status

• S&P 500 6,849.71+20.35+0.30%Holding 50-DMA support.
• Dow Jones 47,882.69+408.44+0.86%Record High. Led by Financials/Industrials.
• Nasdaq Comp 23,454.13+40.42+0.17%Lagger due to Microsoft/Amazon weakness.
• Russell 2000 ——+1.9%The Big Winner. Small caps love rate cuts.
• 10-Yr Yield 4.06%-3 bpsFalling on weak jobs data.
• Bitcoin ~$93,000+1.5%+1.5%Stabilizing above key support.
• Microsoft $477.73-$12.27-2.5%The drag on the Nasdaq.

🧠 Zephyr’s Synthesis: The “Goldilocks” Pivot

Today marked a decisive shift in market psychology. The fear of “Recession” was outweighed by the promise of “Liquidity.”

1. The “Fed Put” is Back

The ADP report showing 32,000 job losses was shocking, but the market’s reaction was euphoric for rate-sensitive assets.

• The Mechanism: Weak jobs $\rightarrow$ Certain Fed Cut (Odds >90%) $\rightarrow$ Lower Yields $\rightarrow$ Rally in Housing, Small Caps, and Regional Banks.
• The Evidence: The Russell 2000 (+1.9%) and Homebuilders (+2.1%) crushed the S&P 500. This is a classic “early cycle” playbook being run in a late-cycle environment.

2. The AI “Show Me” Phase

The divergence in tech was telling. The market is no longer buying “AI” as a blanket theme; it is picking winners based on current execution.

• Winners: Marvell (MRVL) surged because it has actual orders.
• Losers: Microsoft (MSFT) fell because of slowing growth targets. Salesforce (CRM), reporting after hours, is the next test of this “Show Me” reality.
• The Insight: Investors are punishing “AI Potential” (Software) and rewarding “AI Reality” (Hardware/Infrastructure).

3. The Breadth Breakout

For months, the concern has been “narrow leadership” (Mag 7 or bust). Today was the opposite.

• The Stat: Advancers outpaced decliners 5-to-2.
• The Meaning: The rally is broadening out. Financials (+1.3%), Energy (+1.8%), and Industrials are taking the baton from Tech. This is a healthier market structure, provided the economy doesn’t actually collapse.

📰 Top Stories & Drivers

• Microsoft’s “Quota” Confusion: The report that Microsoft cut AI sales quotas (later corrected to “growth targets”) spooked the software sector. It suggests the “easy money” phase of AI adoption is over, and enterprises are demanding ROI before buying more Copilots.
• Retail “Value” Win: American Eagle (AEO) and Dollar Tree (DLTR) surging confirms the consumer is alive but hunting for value. The “K-Shaped” recovery is fully priced in.
• Crypto Resilience: Bitcoin reclaiming $93k despite the “risk-off” vibe in big tech shows that crypto is decoupling slightly, trading more on its own cycle and liquidity hopes than just as a leveraged Nasdaq proxy.

🔮 Zephyr’s Outlook for Tomorrow

The path of least resistance remains UP, but the risks are shifting from “Rates” to “Growth.”

• The Catalyst: Challenger Job Cuts (Thursday morning). If layoffs spike further, the “bad news is good news” narrative might tip into “bad news is recession” fear.
• The Test: Salesforce (CRM) earnings tonight. If they guide weak on AI monetization, the software sector (IGV) will be under pressure tomorrow.
• Actionable: Watch Small Caps (IWM). If they hold today’s gains, the “broadening out” thesis is real, and the rally has legs into year-end.

Recommendation: The “Fed Pivot” trade is back on. Defensive sectors (Utilities) are lagging, while Cyclicals (Industrials/Financials) are leading. Adjust exposure accordingly.

The Trump Administration rolls back fuel economy rules in a highly anticipated move

Dec. 03, 2025 4:04 PM ET By: Clark Schultz, SA News Editor

The White House announced a reset of the Corporate Average Fuel Economy standards on Wednesday. The development was highly anticipated by the automobile industry and has already been part of the widespread model and production changes that have been announced during 2025.

In essence, the Trump Administration rolls back the fuel economy targets that the Biden administration set, which were viewed as effectively mandating electric vehicles by setting tough targets for gasoline and diesel vehicles. The reset returns standards to levels achievable with conventional gasoline and diesel vehicles.

The White House forecasts the actions will save American families $109 billion in total over the next five years and lower the rate of serious injuries. Separately, the push for autonomous vehicles in the U.S. is also based on the expectations for lower transportation costs and increased safety.

General Motors (GM) and Ford Motor (F) showed a modest gain of less than 2% in late afternoon trading, while Stellantis (STLA) was up about 4.0%.

• Indexes held up well and /CL dropped to $58.96 so stop over $59 now to lock in $250/contract.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.6 million barrels from the previous week. At 427.5 million barrels, U.S. crude oil inventories are about 3% below the five year average for this time of year. Total motor gasoline inventories increased by 4.5 million barrels from last week and are about 2% below the five year average for this time of year. Finished gasoline and blending components inventories increased last week. Distillate fuel inventories increased by 2.1 million barrels last week and are about 7% below the five year average for this time of year. Propane/propylene inventories decreased 0.7 million barrels from last week and are about 15% above the five year average for this time of year. Total commercial petroleum inventories increased by 5.2 million barrels last week. 

Well that’s not good and it’s really strange they didn’t put a number on /RB…

• We’re back at $59.25/62.94 and I think my premise to short /CL is still in place but it’s tricky.

• And it’s Webinar Time!

That is, effectively a new trade with all the changes but I did not say “Good for a new trade” because I don’t think it’s likely enough of a winner to recommend at the moment (but people already in it need to fix it – as I don’t think it should be cut either).

I wish it were all black and white but there’s 50 shades of grey in-between.

Oh, and that goes for subtractions too. If we’re missing something – let us know…

Just so you know, here’s Zephyr and I discussing which stocks I think should NOT have been put on the Kill List in part 2 (before it was finalized):

 😎  Part 2 Kill list issues:

NLY, I like the REITs, are you sure they’ll have trouble with Trump appointing a doveish chair AND continuing the rate-cut pressure?

RH – I think top 10% not sensitive to recession

RKT – Same issue, I don’t buy into the simple sticky-rate mantra.

SOFI – I LOVE them, huge growth, fun to play selling options.

TGT – I think they are a comeback play into 2027 as they rebalance.

WHR – Too cheap to kill. Another long-term turnaround

YETI – At $40/mug they were never chasing price-sensitive consumers. Whole foods is filled with knock-offs and no one buys them but Yeti sales go up and up while they buy back their own shares with the profits.

 👥 This is a strong set of challenges. Similar to Part 1, we can move these from “Kill” to “Speculative / Special Situations” if we accept the specific risks involved.

Here is the “Pushback vs. Potential” analysis based on your points and the source data, specifically regarding the Trump administration, tariffs, and interest rates.

1. NLY (Annaly Capital)

• Your Thesis: Trump will appoint a dovish Chair; rate-cut pressure continues; REITs will fly.
• The Pushback (The “Sticky” Problem): You are betting on the Fed cutting rates, but the source notes that “inflation remains a key concern” and the Fed raised its 2025 core inflation forecast to 2.8% largely due to tariffs. Even if Trump appoints a dove, the bond market (long end of the curve) might revolt if inflation spikes, keeping mortgage rates high even if the Fed Funds rate drops. NLY suffers when the yield curve is volatile or inverted.
• Verdict: Move to “Income Watch.” The yield (~13.6%) is compelling, but the source warns that book value is eroding and leverage is high (7.6x),. We keep it, but we watch the spread, not just the Fed Funds rate.

2. RH (Restoration Hardware)

• Your Thesis: The top 10% are not sensitive to recession.
• The Support (Source Data): The sources actually back you up here more than the “Kill” designation did. RH recently delivered surprising earnings with demand rising mid-teens percentages, showing that the affluent consumer is engaging. They are also shifting sourcing away from China (down to 2%) to mitigate tariffs.
• The Risk: The housing market is the “weakest in decades,” and RH carries a massive debt load.
• Verdict: Move to “Speculative Turnaround.” If the rich keep spending, RH wins. We will watch for entry in the $170–$180 range.

3. RKT (Rocket Companies)

• Your Thesis: Sticky-rate mantra is wrong; rates will fall.
• The Pushback (Valuation): Even if rates fall, RKT is expensive. It trades at a forward P/E in the 24–32 range, which is high for a cyclical financial. The source notes that while they are gaining market share, the stock is “best suited for investors willing to accept volatility”.
• Verdict: Move to “Watch List.” It’s a bet on the Fed. If you are right about rates, RKT works. If inflation sticks, it’s a value trap.

4. SOFI (SoFi Technologies)

• Your Thesis: Love the growth; great for selling options.
• The Support: The sources actually call SOFI the “Trade of the Year, 2025”,. They achieved GAAP profitability, membership surged 34%, and they are diversifying away from just lending.
• The Risk: It was originally marked “Kill” for 2026 because fintech is volatile in a defensive market. However, the growth metrics (20-25% revenue growth projected) support your enthusiasm.
• Verdict: Move to “High Conviction Growth.” This was likely a categorization error in the “Kill” list. The sources support keeping this as a core growth holding.

5. TGT (Target)

• Your Thesis: A comeback play into 2027.
• The Pushback (China Exposure): Target sources 30% of its merchandise from China. This makes them uniquely vulnerable to the new tariff regime compared to peers like Walmart or Costco. They are struggling to pass these costs on to consumers who are already pulling back.
• Verdict: Keep as “Deep Value Watch.” At ~15x earnings with a 3.5% yield, it’s cheap. But until they fix the supply chain mix, the tariff headwinds are mathematically brutal.

6. WHR (Whirlpool)

• Your Thesis: Too cheap to kill; long-term turnaround.
• The Support (Domestic Edge): The sources highlight a key hidden asset: Whirlpool manufactures 80% of its US-sold appliances domestically. This means while they pay tariffs on raw steel/aluminum, their foreign competitors pay tariffs on finished units, potentially giving WHR a pricing advantage.
• The Risk: They cut the dividend by 49%. That is a major red flag for income investors.
• Verdict: Move to “Tariff Play.” If tariffs crush foreign appliance imports, WHR regains market share. We watch for margin recovery in Q3/Q4.

7. YETI (YETI)

• Your Thesis: Premium pricing works; knock-offs don’t hurt them.
• The Pushback (Margins): The issue isn’t sales (International sales surged 21.8%), it’s margins. Tariffs are expected to reduce gross margins by 450 basis points because a lot of their supply chain was in China.
• The Support: They are actively moving production to Southeast Asia and buying back shares. Margins remain robust at ~60% despite the hit.
• Verdict: Move to “Growth Watch.” The brand is resilient. If they fix the supply chain, the stock rebounds.

Summary of Changes to Part 2

We will rescue these 7 stocks from the “Kill” list and categorize them as follows in the final publication:

• High Conviction Growth: SOFI
• Speculative / Turnaround: RH, WHR (Tariff Play), YETI
• Income Watch (High Risk): NLY
• Deep Value / Macro Bet: RKT (Bet on Rates), TGT (Bet on 2027)

Shall I proceed with generating the final text for Part 2 with these adjustments integrated?

 😎  Good point on RKT but a Watch List is not a buy list. We don’t have all the facts, so we wait. Same goes for RH, NLY, SOFI.. Meanwhile, we don’t have all these sub-lists, they just move to marry and please now redo that part 2 list.

yes I read. I always do. But this was an adjustment. When is still good for a new trade you write “good for a new trade” in blue.
but understood what you meant. thanks.