To The Moon

The coming end-of-year is shaping — and the policy moves by the Federal Reserve (Fed) will have important implications for investors.

In this article I would like to share how we see it, given what is known now — and what investors might consider doing over the final month of 2025 and early 2026.

What the Fed’s move means (ending QT + reinvesting into T-bills)

The Fed has announced that starting December 1, it will stop shrinking its balance sheet (i.e. end Quantitative Tightening, QT).

Instead of letting assets (Treasuries and mortgage-backed securities, MBS) roll off without replacement, the Fed will reinvest maturing MBS proceeds into short-term Treasury bills (T-bills).

Mechanically, that means less downward pressure on liquidity / bank reserves. In effect, money-market liquidity should improve.

Symbolically, this marks a shift in stance from contraction (QT) to “steady / neutral” — or at least a stand-by mode where the Fed preserves flexibility to ease further if needed.

Why this matters for markets: Improved liquidity tends to ease funding pressures, lower stress in short-term funding markets, and often supports lower yields on longer-duration bonds.

That, in turn, tends to be supportive for both bonds and risk assets (equities, credit), especially when combined with possible rate cuts.

Rate-Cut Odds Rising — But Still Some Uncertainty

Markets appear to be pricing in a decent chance of a rate cut by the Fed in December 2025.

But official commentary remains cautious: while rate cuts are likely, they are “not guaranteed.” The economy (inflation, labour, growth) still matters, so a December cut depends on incoming data.

Also, ending QT is not identical to launching a full-blown resumption of QE: the reinvestment is in short-term T-bills, not long-term bonds or MBS. So the structural boost to long-term yields or risk-asset valuations may be more muted than during past QE episodes.

Thus the backdrop tilts more dovish, and is supportive of lower rates / easier liquidity, but investors should remain mindful of the risk that the Fed holds off if macro data disappoints (or inflation re-surges).

What this means for different types of investors/strategies — and what to do now

Here is how you might think about adjusting your positioning in light of the Fed’s moves, especially during the rest of 2025 / early 2026.

Long-Duration Bonds or Treasuries

With better liquidity and potential rate cuts, long-duration US Treasuries or bond funds could do well — yields may fall, boosting bond prices. The end of QT tends to make “duration-long” bonds more attractive.

Equities and Credit / Risk Assets

Lower rates + improved funding conditions often favour equities, especially rate-sensitive sectors (e.g. consumer discretionary, real estate, growth/small-cap), as well as corporate credit / high-yield bonds.

Short-Term Instruments / Cash Equivalents

With T-bills likely to remain attractive (especially if the Fed is buying them, pushing yields down), short-term Treasury bills or money-market funds can continue to serve as low-risk, liquid “parking” spots — useful if you expect volatility or want dry powder for buying opportunities.

Hedging / Balanced Portfolio Approach

Given uncertainty (rate cut not guaranteed, macro risks remain) a balanced portfolio — combining some duration exposure, equities/credit, and cash — may offer a good tradeoff between upside and risk.

Tactical Tilt Ahead Of Year-End

Given historical patterns, the final two months of the year can sometimes be strong for risk assets when liquidity conditions improve and rate outlooks soften.

If you are tactically minded: one could consider modest overweighting in equities or credit heading into December — but keep some dry powder in cash or short-term bonds in case the Fed holds off.

Key Caveats / Risks To Watch

The Fed’s reinvestment is in short-term T-bills, not long-duration securities — so the “boost” to long-term yields / yield curve or to risk assets may be limited compared with past QE.

A lot depends on incoming economic data: if inflation surprises higher, the Fed may pause on cuts — which could spook markets.

Liquidity improvement doesn’t guarantee strong economic growth or corporate earnings — equities and credit still could be vulnerable in a weak-earnings environment.

Markets may already be “forward-looking” — some of the positive effects may already be priced in.

My “Base Case” View & What I Would Do (If I were investing/trading)

If I were building or adjusting a portfolio now (late Nov 2025), I would probably:

Tilt modestly toward long-duration Treasuries / bond funds — as a stable ballast given likely rate cuts. $iShares 20+ Year Treasury Bond ETF(TLT)$

Keep a meaningful allocation to equities / credit risk — especially in rate-sensitive sectors, but avoid over-concentration.

Hold some short-term cash / T-bills as dry powder — this gives flexibility if volatility spikes or new opportunities arise.

Avoid overly aggressive “all-in” bets — treat this as a period of higher uncertainty and greater spread in potential outcomes.

In the next section I would like to share three modeled 2026 portfolios — Conservative, Balanced, and Aggressive — designed specifically for the post-QT, rising rate-cut odds, liquidity-improving Fed backdrop. These simulations focus on expected return, risk, and how each portfolio behaves under that 2026 macro scenario. I am using to gauge how I would be adjusting my portfolios.

1) Conservative 2026 Portfolio

Objective: Capital preservation, modest upside, benefit from falling yields. Best for: Investors who prioritise stability and lower volatility.

Simulated 2026 Outcomes

• Expected return: +5.0% to +8.0%

• Volatility: Low

• Primary driver: Bond rally from lower rates

• Risk: If inflation re-accelerates, duration-heavy exposure underperforms.

2) Balanced 2026 Portfolio

Objective: Blend of growth + stability, positioned for a soft landing and liquidity tailwinds. Best for: Investors who want equity upside but still value risk control.

Simulated 2026 Outcomes

• Expected return: +8% to +12%

• Volatility: Medium

• Drivers: A mix of falling rates and equity multiple expansion

• Risk: Fed does not cut as much as expected → growth stocks get volatile.

3) Aggressive 2026 Portfolio

Objective: Maximise total return using risk assets benefiting from easier liquidity. Best for: Investors who believe in a dovish Fed pivot + risk-asset expansion.

Simulated 2026 Outcomes

• Expected return: +12% to +20%

• Volatility: High

• Drivers: Tech/AI-led risk rally + potential small-cap rebound

• Risk: Any inflation surprise → aggressive portfolio gets hit.

You may consider $Technology Select Sector SPDR Fund(XLK)$ or $Invesco QQQ(QQQ)$.

Summary of the 3 Options

Which One Fits The Fed’s Current Trajectory?

Given the Fed ending QT, reinvesting MBS into T-bills, and rising rate-cut odds, the environment currently leans toward:

➡️ Balanced and Aggressive portfolios benefiting more if liquidity continues to improve.

➡️ Conservative portfolios still make sense if you are uncertain about inflation.

Summary

Based on the Federal Reserve's announcement to end Quantitative Tightening (QT) on December 1, 2025, here is a summary of the implications and an investment strategy for the remainder of the year.

Summary: The "Fed Pivot" to Liquidity

The Fed’s decision to halt balance sheet runoff and reinvest maturing Mortgage-Backed Securities (MBS) proceeds into Treasury bills marks a significant shift from tightening to stabilizing market liquidity.

• Liquidity Boost: By stopping QT, the Fed ceases draining cash from the financial system. Shifting reinvestments into T-bills specifically targets the "front end" of the curve, injecting liquidity directly into money markets and keeping short-term funding abundant.

• Double Dovishness: This liquidity support, combined with rising odds of a December rate cut, creates a highly accommodative environment. The Fed is effectively pressing the accelerator (cutting rates) while simultaneously taking its foot off the brake (ending QT).

What This Means for Investors

• Bullish for Risk Assets: The combination of preserved liquidity and lower interest rates is historically a strong "green light" for stocks. The removal of the "liquidity drain" headwind supports equity valuations.

• Yield Curve Steepening: The Fed’s aggressive buying of T-bills will likely suppress short-term yields further than long-term yields. This "bull steepening" favors short-duration assets.

• MBS Headwinds: While the broad market benefits, the MBS sector loses a dedicated buyer (the Fed), potentially widening spreads between mortgage rates and Treasury yields.

Investment Strategy for December 2025

"Don't Fight the Fed" – Buy the Front End:

• T-Bills: With the Fed explicitly committing to buy T-bills, these become a high-confidence trade. Expect yields on 3-month to 1-year bills to drop; lock in current yields or hold for price appreciation.

Risk-On for Year-End Rally:

• Equities (Tech & Growth): Capitalize on the "Santa Claus Rally" fueled by the dual tailwinds of a rate cut and stable liquidity. Sectors sensitive to liquidity (like Technology) tend to outperform in this setup.

Avoid Excess Duration Risk:

• Focus on the short end of the bond market (1-3 years). Long-term bonds may be volatile if the increased liquidity reignites inflation fears in 2026.

Appreciate if you could share your thoughts in the comment section whether you think Fed current trajectory would make you to adopt a more conservative or aggressive portfolio shift or choose to remain unchanged.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.