The Market's Collective Amnesia Problem

We're about to enter the final month of 2025 with a fundamental contradiction that nobody wants to stare at directly. The S&P 500 is doddering along at 6,818—down 0.45% today—while simultaneously pricing in an 87% probability that the Federal Reserve will cut rates on December 10. Most of Wall Street has accepted this as baseline sanity. Most of Wall Street is hallucinating.

Let me trace the actual timeline, because it matters.

Six weeks ago, a December rate cut was a done deal. Markets were modeling 97% odds. Then came the September jobs data (delayed, granular, messy) plus some fresh hawkish mutterings from Fed officials, and suddenly the probability cratered to 30%. Black Friday came. Some retail data landed. PPI softened. And now—now—we're back at 87% odds, driven largely by one speech from New York Fed President John Williams, who suggested that monetary policy is still "modestly restrictive" and there's room for adjustment.

One speech. That's the swing factor in a $40 trillion asset market.

Here's what's actually happening, stripped of the calendar-watching noise: The Fed faces a genuine genuine dilemma. The labor market is softening—unemployment at 4.4%, private payrolls declining by an average of 13,500 weekly—but it's not collapsing. Inflation (2.75%–3%) is elevated relative to the Fed's target but has been trending downward. The economy is muddy. Not broken, not soaring, just stubbornly middling.

In that ambiguous landscape, Williams—who has never voted against Powell, never in his entire Fed career—essentially green-lit a December cut by proxy. Markets interpreted this as permission to front-run the decision. What they really did was lock themselves into a binary outcome. If Powell deviates from that signal, if new data suggests holding steady, the repricing will be violent.

The architectural problem is this: We've built a market that can only hold two states—cut or don't cut—when reality occupies a spectrum. A 25-basis-point cut in December isn't the same as a cut in January. A pause isn't hawkish if it's followed by cuts in 2026. But the way options markets, Fed funds futures, and equity valuations are now calibrated, there's almost no room for nuance.

Look at what's happening in individual names. Google is up 20% this month alone, riding a Gemini 3 release, strong earnings, and reports that Meta is considering a multibillion-dollar chip deal. Alphabet is now worth nearly $4 trillion. Meanwhile, Oracle lost nearly 30% and Nvidia is down 8%. The AI trade has fractured into shards—not because the underlying thesis changed, but because the beneficiary narrative keeps shifting. First it was chips, then clouds, now services and software. This is what happens when a theme gets too frothy: the winners list keeps rotating because there's always a fresh angle to justify the next buyer.

The same pattern shows up in December seasonality talk. The S&P 500 typically averages 1% gains in December. Historically, it's the third-best month going back to 1950. Everyone knows this. Everyone factors it in. And then market makers price the statistical edge out of existence. What once was free alpha—just own December—becomes a crowded consensus and therefore, over time, worth nothing.

What I'm watching on December 2, when the ISM Manufacturing Index hits the wire: Is factory sentiment holding or accelerating downward? If it falls materially below 49—the contraction threshold—the Fed has new justification to cut. If it comes in north of 50 with any momentum, the rate-cut thesis gets tested immediately. The expected print is 49, which is basically the line between "soft" and "deteriorating."

For crypto, Bitcoin tumbled 4.8% today and is now below $87,000. The correlation to Fed policy has become almost mechanical at this point. A cut = less opportunity cost of holding an unproductive asset = fresh demand. A hold = proof that the Fed is serious about fighting inflation = risk-off sentiment. What's missing from this calculus is any assessment of Bitcoin's actual utility or its own internal dynamics. It's become a pure policy proxy.

The December meeting isn't an investable event—it's a test of whether the market can tolerate ambiguity. If the Fed cuts, equities will probably grind higher for a week or two before asking the real question: Is this easing cycle real, or is it a soft-landing fantasy? If the Fed holds, the selloff will be sharp and probably overdone, creating entry points for anyone brave enough to buy dips.

My read is Williams didn't green-light a cut. He green-lit the market's expectation of a cut. Whether Powell actually delivers is another matter entirely. That's where the amnesia kicks in—most traders seem to have forgotten that jawboning a market higher and then disappointing it is a time-honored Fed practice. It keeps people sharp. Humble. Aware that a speech is just a speech.

December will tell us if we've learned anything this year about listening versus he