The Fed Put Is Back—But Who's Buying?

Daly AM Is Now Trading on Surmount

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💡 Stock of the Week: Lennar Corporation (LEN)

Ticker: LEN | Sector: Homebuilders | Market Cap: ~$46B | Dividend Yield: ~1.5%

Homebuilders don't get sexy. They get profitable. And while the market has been obsessing over which AI chip will power the next chatbot, Lennar just closed a strategic spinoff-merger with Millrose Properties, retiring roughly 8 million shares and tightening its balance sheet without issuing a single share of new equity.

The macro backdrop is shifting in Lennar's favor. Mortgage rates have dropped to around 6.2%, the lowest in roughly a month, tracking the 10-year Treasury's move below 4%. Mortgage applications for home purchases recently rose by nearly 8%, with government-backed loans seeing their strongest activity since 2023. And here's the kicker: the average mortgage rate for buyers of new-construction homes stood at 5.27%, versus 6.26% for existing homes—a gap driven by builder-subsidized rate buydowns that gives Lennar a structural competitive edge over the existing home market.

Meanwhile, pending home sales rose 4.8% month-over-month, the strongest monthly gain since 2020. Housing inventory remains tight, and demographics are on Lennar's side—millennial household formation is still in full swing, and they're not building enough homes to meet it.

Valuation is where it gets interesting. The stock trades at roughly 12.6x forward earnings, well below its long-term average, while Lennar repurchased 4.1 million shares for $507 million in Q3, at an average price of about $123 per share. Management is buying back stock at these levels. That's a signal.

Risks to Watch

Don't ignore the downside. If the Fed holds rates in December or signals fewer cuts in 2026, the 10-year Treasury could spike back above 4.25%, dragging mortgage rates with it. Builder margins are also under pressure from land and labor costs. And if a recession materializes in 2026, discretionary purchases like homes get deferred fast.

The Verdict

We're long because housing is essential, Fed policy is turning accommodative, and Lennar is systematically returning capital to shareholders while the market frets over whether Nvidia's next earnings beat will be 10% or 12%. Sometimes the best trades aren't the loudest.

📉 Market Snapshot (Week of Nov 24-28, 2025)

** Approximate EOW close.

The Dow gained around 3% for the week, while the S&P 500 and Nasdaq rose more than 3% and more than 4%, respectively. This marked a sharp reversal from last week's losses, driven almost entirely by a single catalyst: New York Fed President John Williams signaling support for a December rate cut.

The rotation underneath tells the real story. Small-cap stocks ran circles around their larger counterparts in November, with the Russell 2000 adding 0.8% for the month while the Nasdaq fell nearly 2%. Small caps are the most rate-sensitive slice of the equity market—they carry disproportionate debt maturities over the next four years and trade on hope more than earnings. When rate cut odds spiked from 30% to 85% in three trading sessions, small caps ripped.

But this wasn't a quality rally. Volume was 33% below the 30-day average on Friday's shortened session. No major catalysts, no earnings surprises, just positioning ahead of the Fed meeting and short covering from those who bet against a December cut.

📊 Market Commentary

The Fed's Whiplash Policy Pivot

Three weeks ago, markets priced in a 22% chance of a December rate cut. By mid-October, the probability stood at 97%. Then September jobs data came in stronger than expected, and the odds collapsed back to 30% by mid-November. Now? Roughly 80% certainty of a quarter-point cut at the Fed's December meeting.

What changed? New York Fed President John Williams said "I still see room for a further adjustment" in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral. Williams is the vice chairman of the FOMC and rarely deviates from Powell's script. His comments carry weight.

But here's the rub: inflation climbed at an annual rate of 3% in September, well above the Fed's 2% target. The labor market is cooling, but not collapsing. The Fed is trapped between two mandates. Cut too soon, and inflation re-accelerates. Cut too late, and the job market cracks.

The government shutdown erased six weeks of economic data, leaving the Fed flying blind into its December meeting. The Bureau of Labor Statistics said it will fold some October jobs data into its November report, which is set for release after the Fed's next meeting, on Dec. 16. They're literally making policy decisions without knowing what happened in October.

Markets rallied on hope. But hope isn't a strategy.

The AI Bubble Question No One Wants to Answer

Palantir trades at roughly 250x–400x forward earnings and an extremely high price-to-sales multiple, far above AI leaders like Nvidia. Michael Burry disclosed large put positions against both Palantir and Nvidia, arguing in public posts that parts of the AI trade are in a bubble.

November was brutal for AI stocks. Nvidia dropped about 15% month to date, marking the stock's worst month since September 2022. The narrative shifted from "AI will change everything" to "but when do these companies actually make money?" Nvidia's revenue growth is slowing—not collapsing, but decelerating from the triple-digit rates that justified its valuation. And the hyperscalers are signaling they might diversify chip suppliers. Meta is considering using Google chips in its data centers in 2027.

Here's the uncomfortable truth: AI infrastructure spending is a bet on future productivity gains that haven't materialized yet. If you're paying 300x earnings for a software company that sells AI tools, you're betting those tools will be so transformative that margins expand and revenue compounds for a decade. Maybe they will. But the market is pricing in perfection.

Small Caps Are Screaming Something

The Russell 2000 index climbed more than 2% and closed above its 50-day moving average for the first time since November 14. Small caps outperformed mega-caps by 100 basis points this week. Why does that matter?

Small caps are leveraged to domestic economic growth and rate cuts. They're also the most vulnerable to a recession. When small caps rip while inflation is still at 3% and the Fed hasn't actually cut yet, it's either a leading indicator that growth will accelerate—or it's a positioning-driven squeeze that reverses the moment macro data disappoints.

We're skeptical. Many Russell 2000 companies have negative earnings, and a larger share of debt is coming due over the next four years. If the Fed pauses in December or signals fewer cuts in 2026, small caps will get crushed.

Oil's Quiet Collapse

Crude oil rose to 58.84 USD/Bbl, down 14.64% compared to the same time last year. WTI is trading near its lowest levels since 2021, and no one is talking about it. Why? Because oil at $60 is disinflationary. It takes pressure off the Fed, lowers input costs for manufacturers, and gives consumers more disposable income.

But oil this cheap also signals weak global demand. China's economy is still sputtering, Europe is in stagnation, and U.S. manufacturing PMI has been contracting for months. WTI crude oil has been trading within a descending channel since late October, and if it breaks below $57, we're looking at a move toward $55 or lower.

Energy stocks are pricing in $70 oil. If $55 becomes the new normal, those dividends look a lot less safe.

Gold's Stealth Rally

Gold rose to 4,162 USD/t.oz, up 56.60% compared to the same time last year. This is one of the best-performing assets of 2025, and it's happening while real yields are positive and equity volatility is declining. That shouldn't happen.

Gold is telling you central banks don't trust fiat currency. Central banks purchased 220 tonnes in Q3, up 28% from Q2, with total purchases reaching 634 tonnes since the start of the year. They're not buying gold because they think inflation is coming back—they're buying it because they think the dollar's reserve status is under threat.

🧭 Tactical Map: Where to Lean In

• Rate-Sensitive Value: Homebuilders, regional banks, REITs—anything that gets crushed when rates rise and rips when they fall. If the Fed cuts, these go higher.

• Energy Shorts: Oil at $60 with global demand weak. If you're not short energy, you're missing the trade.

• Gold as Portfolio Insurance: Central banks are accumulating. That's not noise.

• Avoid High-Multiple AI: Palantir at 300x earnings is not a risk we're taking. If you own it, trim.

• Small Cap Skepticism: The Russell rally feels like a positioning squeeze, not a sustainable trend. Fade strength.

🔍 Theme to Watch: The Fed Put Is Alive—But for How Long?

For years, "the Fed put" was gospel on Wall Street: any time markets dropped 15%, the Fed would step in with liquidity. Powell tried to kill it. He said he wouldn't bail out risk assets. And then what happened?

Goldman Sachs' Jan Hatzius said "Though badly delayed, the September jobs report may have sealed a 25bp cut at the December 9-10 FOMC meeting". The Fed is cutting with inflation at 3%, unemployment at 4.4%, and the S&P 500 down just 1% for the month. That's not crisis management. That's accommodation.

Why? Because the Fed knows what's coming. The labor market is softening, not collapsing, but the leading indicators are flashing yellow. The U.S. government shutdown made employment data harder to come by, but most analysts think the labor market is getting weaker. If they wait too long, they risk a hard landing.

But here's the catch: the Fed is cutting into strength. The S&P 500 is near all-time highs. If they deliver 75 basis points of cuts and inflation re-accelerates in Q1 2026, they'll have to reverse course. And the market will punish them for it.

The Fed put is back. But it's not the insurance policy it used to be—it's a loan shark that expects repayment.

📅 Forward View: Dec 2-6, 2025

Key Events

• Dec 2: ISM Manufacturing PMI (consensus: 48.5, prior: 48.1)—another contraction expected

• Dec 5: Jobless Claims (prior: 1.98M)—watch for any signs of labor market stress

• Dec 6: Nonfarm Payrolls (consensus: 160K)—this is the big one, released after the Fed meeting

• Dec 9-10: FOMC Meeting—85% chance of a 25 bps cut, but the dot plot and Powell's press conference will matter more than the decision itself

Key Levels

• S&P 500: Support at 6,750, resistance at 6,850. A break above 6,850 likely triggers a year-end melt-up. A break below 6,750 means we retest 6,600.

• 10Y Yield: Support at 3.90%, resistance at 4.10%. If yields spike back above 4.10%, the rate cut narrative dies.

What We're Watching

Powell's tone in the December press conference. If he signals this is a "one and done" cut with fewer cuts in 2026, equities will sell off. If he keeps the door open for quarterly cuts, we get a Santa Claus rally.

💬 Final Words

Markets rallied 3% in three days on the hope that the Fed will cut rates. Not because earnings are accelerating. Not because economic data improved. Just hope.

Hope is a feeling, not a trade thesis. The Fed is trapped between cooling growth and sticky inflation, making policy decisions without October data, and trying to thread a needle that gets smaller every day.

We remain systematic. We follow the data. And we don't chase rallies built on central bank speculation. Daly Asset Management strategies execute automatically—no emotions, no guessing, no hoping the Fed bails you out. That's how you survive cycles.

Disclosures: This newsletter is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Always conduct your own due diligence or consult with a financial advisor before making investment decisions.