Analysis of Potential Year-End U.S. Market Rally Amid Fed Policy Shifts

This analysis is based on the Fox Business segment featuring Chris McMahon [1], where he highlighted the Fed’s recent end of QT and impending rate cuts as catalysts for a year-end market rally. The Federal Reserve officially concluded its QT program on December 1, 2025 [2], a move that aligns with positive market momentum observed over the past 30 days: the S&P 500 rose 1.45%, NASDAQ Composite 1.88%, and Dow Jones Industrial Average 2.44% [0]. On December 5 alone, interest rate-sensitive sectors like Real Estate (+1.39%), Communication Services (+1.05%), and Consumer Cyclical (+0.86%) led gains [0], reflecting market anticipation of looser monetary policy. Historical context from Fundstrat indicates markets rallied ~17% within three weeks after the last QT ending, providing preliminary support for McMahon’s thesis [2]. Market participants currently price in at least a 25-basis-point rate cut in December, with additional cuts expected in 2026 [3].

1. Policy-Market Linkage
   : The Fed’s shift from QT to liquidity expansion directly benefits rate-sensitive sectors, as lower borrowing costs enhance their profitability and valuation appeal.
2. Historical Precedent
   : Past QT endings have correlated with short-term market rallies, suggesting the current policy shift could follow a similar pattern if economic conditions remain supportive.
3. K-Shaped Economy Risks
   : The divergence between struggling consumers and soaring large-cap tech stocks complicates the Fed’s rate cut calculus, introducing uncertainty into the rally’s sustainability [3].
4. Crypto Market Spillover
   : Recent volatility in the crypto market could indirectly impact equities if risk sentiment weakens broadly [4].

• Opportunities
  : Rate-sensitive sectors (Real Estate, Consumer Cyclical) may continue to outperform if rate cuts materialize as expected. The end of QT could inject liquidity into markets, supporting further gains.
• Risks
  :
  • Market valuations are near record highs, limiting upside potential [0].
  • Exact rate cut timing and magnitude remain unclear, dependent on upcoming FOMC guidance [3].
  • Global factors like potential Bank of Japan rate hikes could disrupt U.S. market dynamics [4].
  • Economic data (inflation, employment, GDP) may yet shift the Fed’s policy trajectory.

Chris McMahon of Aquinas Wealth Advisors outlined a potential year-end market rally driven by the Fed’s end of QT and rate cut expectations [1]. Market data shows positive short-term momentum with rate-sensitive sectors leading gains [0]. The Fed’s policy shift aligns with historical patterns of post-QT rallies [2], but high valuations, policy uncertainty, and global factors pose significant risks. Decision-makers should monitor the upcoming FOMC meeting for concrete rate cut signals and track economic data for sustained policy support.