Celestino Brunetti @celesh: "Fed December 10: What I..."

Italy

Fed December 10: What I Expect and How I’m Positioning the Portfolio Dear Copy Traders, Investors and Followers, In recent weeks we have seen how quickly expectations around Federal Reserve interest rates can change and, as a result, how quickly market sentiment can swing. In this post I’d like to explain, as clearly as possible, how I read the current situation and how I’m positioning the portfolio ahead of the December 10 meeting. 1. What Has Happened and What the Market Is Telling Us Several comments from Fed members initially cast doubt on the possibility of a rate cut as early as December, triggering a sharp pullback in equity markets. Subsequently, remarks from Williams reignited expectations of a cut, and markets rallied strongly. For me, the key point is not “who was right”, but the fact that just a few sentences are enough to shift markets from one scenario to the opposite. This confirms that we are in a phase of high sensitivity to Fed decisions, where it is crucial to manage risk properly rather than simply chasing the prevailing trend. 2. Approach to Future Scenarios Before going into the possible future developments, a brief disclaimer is necessary: the information in this post is for informational and educational purposes only and does not constitute financial advice, investment recommendations or a solicitation to take on risk. Any investment decision remains the sole responsibility of each individual investor. The rate decision on December 10 will be a key driver for market direction in the coming weeks. I am mainly working with three scenarios: Best‑case scenario (bullish for equities) The Fed cuts rates and accompanies the decision with a broadly positive outlook for 2026, particularly regarding the possibility of further cuts. In this case, my portfolio, which is predominantly equity‑focused at the moment, would benefit. Under this scenario, the idea would be to gradually reduce index shorts and part of the long USD exposure ( $EURUSD $USDSEK etc) while still maintaining an overall balanced structure. Negative scenario (bearish) The Fed does not cut and delivers a cautious/negative outlook for 2026 (concerns about inflation, financial conditions seen as still too loose, etc.). Here I would expect a meaningful correction in equity markets. In this context, I would be partially hedged by my index positions but above all by my long exposure to the US dollar, which would benefit from higher‑for‑longer rates. Intermediate scenario (direction still to be defined) The Fed does not cut but remains relatively optimistic on the outlook, or it cuts but accompanies the move with a more cautious tone. In this case, I expect a phase of choppy price action and would assume that market direction will depend more on Powell’s tone than on the exact details of his statements, as has often been the case in the past. Here my approach would be more tactical: trying to take advantage of short‑ to medium‑term moves without fundamentally changing the overall structure of the portfolio. 3. How the Portfolio Is Positioned Today To manage the risks associated with these scenarios, I have put in place a set of hedging positions: I am long the US dollar, because in a higher‑for‑longer rate environment the dollar tends to remain relatively strong. This is also a medium‑ to long‑term position in my view, supported by the carry trade effect. I hold small short positions on equity indices, with a limited weight relative to total portfolio size. Their purpose is to reduce net equity exposure in negative scenarios, not to “bet” on a major crash, which I do not currently see as my base case, despite recurring concerns about a potential AI “bubble”. I also hold a long position on the $VIX.DEC25 with modest size, as a hedge against a sudden spike in volatility. In the event of a market shock or a rapid increase in fear, this position can help offset part of the negative impact on the equity side of the portfolio. These hedges are “sacrificable”: if the environment were to turn clearly in favour of equities, I am prepared to close them at a loss. However, I prefer to have this parachute in place in such a Fed‑driven phase, rather than being fully exposed only to the positive side of the scenario. In Summary I am preparing the portfolio for three possible outcomes of the December 10 Fed meeting, with a structure that allows me to participate in an equity rally while keeping hedges in place in case of a negative surprise. The short positions on indices have a limited weight and are intended as risk‑management tools rather than core directional bets. The long VIX position is designed as a hedge against a rapid increase in volatility. I do not chase every headline, but I aim to adjust positioning as macroeconomic scenarios become clearer over time. Ad maiora!

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