Fed Daly's December Rate Cut Support: Market Implications & AI Sector Dynamics

Fed San Francisco President Mary Daly’s surprise support for a December rate cut [1] has pushed the CME FedWatch probability to 81% [2], up from 42% a week prior. This signals growing consensus among Fed officials, despite Daly’s non-voting status in 2025-26 [1]. Sector performance data [3] shows Healthcare leading gains (+1.45%)—likely defensive positioning amid labor market concerns—while Real Estate underperformed (-1.49%) in a counterintuitive trend. The AI sector faces dual pressures: Google’s TPUs (used for Gemini3) are emerging as a rival to NVDA’s GPUs (90% market share) [4], and Michael Burry’s bubble claims have prompted NVDA’s public rebuttal [4].

Cross-domain connections:

1. Rate cut expectations drive both risk asset optimism and defensive sector rotation (Healthcare gains)
2. Non-voting Fed members like Daly exert significant influence on market sentiment
3. AI sector volatility risks are amplified by competitive threats (Google TPUs) and bubble concerns (Burry/Reddit) [5]

: AI sector volatility (Burry’s claims + Google competition), Real Estate short-term uncertainty, labor market fragility concerns [1]
: Defensive sector outperformance (Healthcare), potential buying opportunities in AI during sell-offs [5]

Key data points: 81% December rate cut probability [2], Healthcare +1.45% [3], Real Estate -1.49% [3], NVDA’s 90% AI accelerator market share [4]
Context: Daly’s non-voting status [1], Google Gemini3 trained on TPUs [4]