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Tech Jitters and the Fed Divide: The 3Step Market Playbook · The SPY Trader

• 0:00
  Welcome back to Spy Trader , the podcast dedicated to navigating the volatility and finding alpha in the US equity markets .
• 0:08
  I'm your host , Barry Bullish , and it's 5 am on Friday , January 2nd , 2026 , Pacific .
• 0:16
  We are diving into the market action as the cautious optimism theme continues to dominate the start of the new year .
• 0:23
  First , a quick look back : the market ended the previous year with serious momentum .
• 0:29
  The S&P 500 , which we track closely via the SPDR S&P 500 ETF Trust , or SPY , was up 16 to 17% , and the techheavy Nasdaq 100 , represented by the Invesco QQQ Trust , QQQ , surged over 20% .
• 0:49
  That momentum is facing headwinds , however .
• 0:53
  On the macroeconomic front , the job market remains resilient , with initial unemployment insurance claims staying low , providing a foundational pillar for corporate earnings and consumer spending .
• 1:05
  The big uncertainty , as always , is the Federal Reserve .
• 1:09
  Treasury yields have recently ticked higher because Fed officials are deeply divided on the path for interest rate cuts .
• 1:16
  Some see a cooling labor market justifying cuts in the first half of the year , while others warn that inflation is persistent .
• 1:25
  All eyes are now on the upcoming Consumer Price Index release , which is forecast to show inflation rising about 3% annually .
• 1:33
  A betterthanexpected CPI would solidify the case for rate cuts and likely send stocks flying .
• 1:40
  Sectorwise , while Communication Services and Information Technology led last year , the most recent trading days have seen those leaders facing pressure , specifically Technology and Consumer Discretionary .
• 1:54
  Conversely , sectors like Energy and Communication Services have been top shortterm performers in mixed sessions .
• 2:02
  This recent weakness in Tech is crucial .
• 2:04
  There is growing investor apprehension about a potential ' AI bubble , ' and this has weighed heavily on QQQ and the Technology Select Sector SPDR Fund , XLK .
• 2:17
  This was exacerbated by news that Oracle reported disappointing earnings and faced issues with a planned data center deal , causing sympathy declines in major AI players like Nvidia and Broadcom .
• 2:29
  However , analysts still favor Technology for continued outperformance in the new year , followed by Energy and Defense .
• 2:36
  So , how should traders navigate this market where the foundation is strong but the leadership is wobbly ?
• 2:42
  We have three specific recommendations .
• 2:45
  First , stick with core longterm growth .
• 2:49
  Despite the shortterm rout and AI bubble fears , the technological megatrend is expected to continue driving profits .
• 2:56
  You should maintain core exposure using the Invesco QQQ Trust to capture that largecap , highgrowth , AIheavy exposure that analysts expect to lead .
• 3:07
  Second , introduce some defense .
• 3:09
  If inflation remains hot and rate cuts are delayed , defensive sectors offer protection .
• 3:16
  We suggest reallocating a portion to the Health Care Select Sector SPDR Fund , XLV , as analysts view Drug Development favorably .
• 3:25
  For stability and income , consider fixedincome instruments like the iShares Core U.S.
• 3:30
  Aggregate Bond ETF , AGG , as bonds have reclaimed leadership over cash , and their potential total return is enhanced by future rate cut expectations .
• 3:42
  Third , capitalize on thematic and cyclical shifts .
• 3:46
  Analysts broadly favor the Energy sector for the new year .
• 3:50
  To overweight this exposure , consider the Energy Select Sector SPDR Fund , XLE .
• 3:57
  That’s all the time we have for this edition of Spy Trader .
• 4:01
  Trade safely and we'll catch you on the next tape .