Pre-Fed Meeting Stock Rebound Amid Market Leadership Shift to Rate-Sensitive Sectors

This analysis is based on the December 5, 2025 Investopedia report [1] and complementary market data [0]. Over the 20-day period ending December 5, 2025, the S&P 500 (+2.65%), NASDAQ Composite (+2.93%), and Dow Jones Industrial Average (+2.61%) posted broad-based rebounds [0]. A key trend emerged: market leadership shifted away from the Technology sector (a dominant driver of 2025 gains) to Communication Services and Real Estate. ETF performance confirms this shift: Communication Services (XLC) gained 4.81%, Real Estate (XHB) 3.45%, and Technology (XLK) only 2.25% [0].

The rotation is closely tied to Fed meeting expectations. Market participants priced in an 89% likelihood of a 25-basis-point rate cut at the December meeting [2], which reduces borrowing costs for Real Estate companies and supports stable performance in Communication Services media/internet stocks [0]. In contrast, Technology’s underperformance stems from stretched valuations as investors rotated into more rate-sensitive sectors [0].

1. Rate cut expectations are the primary catalyst
   : The market’s pricing of a near-certain Fed rate cut is driving sector rotation, prioritizing rate-sensitive industries over the previously dominant Technology sector [2].
2. Leadership shift marks a 2025 trend reversal
   : The decline in Technology’s leadership deviates from the sector’s earlier dominance in 2025, signaling potential portfolio rebalancing by investors [0].
3. Market vulnerability to Fed communication
   : While a rate cut is widely expected, unexpected Fed commentary could reverse the current rebound, particularly impacting rate-sensitive sectors [0].

• Risks
  : A surprise Fed pause in rate cuts could trigger a market correction, especially in Real Estate and Communication Services [0]. Delayed release of the Fed’s preferred PCE inflation gauge could also disrupt sentiment if it shows higher-than-expected inflation [3]. Ongoing global geopolitical tensions remain an overhang [0].
• Opportunities
  : If the Fed proceeds with the anticipated rate cut, rate-sensitive sectors (Real Estate, Communication Services) may sustain their momentum, while Technology could recover if valuations adjust [0].

This analysis synthesizes data on pre-Fed meeting stock rebounds, sector leadership shifts, and rate cut expectations. Major indices rebounded 2.61–2.93% over 20 days, with Communication Services and Real Estate leading, and Technology underperforming. The 89% market expectation of a 25-basis-point Fed rate cut is driving sector rotation. Decision-makers should monitor Fed meeting outcomes, inflation data, and geopolitical developments to assess the sustainability of current market trends.