MW A deeper dive into Fed rate cuts and China trade reveals these investing ideas

By Naeem Aslam

Smart investors identify areas where the market might move opposite to expectations

The dust has started to settle after the Federal Reserve's latest rate cut and the meeting between President Donald Trump and Chinese President Xi Jinping.

At the end of October, the Fed reduced its benchmark interest rate by a quarter-point and said it would stop shrinking its balance sheet in December, adding more cash to the economy. But Fed Chair Jerome Powell hinted that there might be no cut in rates in December, rattling markets. On the trade front, the U.S.-China deal reduced tariffs on imported Chinese items, simplified access to Chinese rare-earth elements and restarted Chinese purchases of American soybeans, which buoyed markets.

Most investors are focused on these big-picture stories. Smart investors dig deeper and identify areas where the market might move opposite to expectations.

Here are a few key areas to watch:

1. Hidden risk in U.S. economic data. U.S. inflation data are scheduled to be reported on Nov. 13 in the form of the consumer-price index. The market expects inflation to decrease to just under 3% year over year, with job growth of 150,000 to keep the Fed on the dovish track.

What could go awry? If inflation surprises on the upside to 3.2% or more because of rising prices of goods - perhaps because of tariffs or lack of transparency in the data due to the government shutdown - investors are likely to fear that inflationary pressures will remain high, even with slower economic growth.

Alternatively, if employment data disappoint, with fewer than 100,00 jobs created because of the ongoing partial government shutdown, the Fed might decide to reduce rates more aggressively. Pay attention to smaller details such as core PCE services inflation - Powell just said it is stubborn, and any surprise there might spur the Fed to adjust course more than the big story.

How to trade uncertainty

If the data are weak (low inflation, decent job growth): The market might rise, with the S&P 500 SPX hitting yet another record. Buy call options on the SPDR S&P 500 ETF SPY with an expiration of Nov. 15.

If inflation surprises on the upside: Yields climb, the technology sector gets hurt. Short the Invesco QQQ Trust ETF QQQ using an inverse exchange-traded fund: the ProShares UltraShort QQQ QID. Enter this trade if the market's relative strength index moves above 70 - considered an overbought level.

How to trade the U.S.-China deal

The tariff reductions with China are positive for U.S. farmers and tech companies in China, such as those that depend on Huawei components. But there might be surprises in the fine print - and the details may be revealed at a later stage.

If there's measurable follow-through: Smaller-cap stocks get favorable trade. Buy the iShares Russell 2000 ETF IWM.

If snags in the deal emerge (for example, new restrictions): Computer chip stock prices decline. Sell the semiconductor sector, such as the VanEck Semiconductor ETF SMH.

Overlooked budget battles

The headlines are focused on ending the U.S. government shutdown by mid-November and managing the debt ceiling. If that should happen, the transportation sector will be an immediate beneficiary. Buy the iShares Transportation Average ETF IYT.

If the shutdown persists, bond yields will move lower and the U.S. dollar DXY will weaken. Consider these trades:

Buy the iShares 20+ Year Treasury Bond ETF TLT if the 10-year U.S. Treasury BX:TMUBMUSD10Y yield slips below 4%. Buy the Financial Select Sector SPDR ETF XLF on fundamentals and short the State Street SPDR S&P Homebuilders ETF XHB on housing-market expectations.

Be on guard

Between earnings surprises and rate-path uncertainty, any misstep in jobs or inflation data could reverse the positive course for U.S. stocks. Stay diversified, keep 20% to 30% of your portfolio in cash, and be ready to strike where and when surprises create market dislocations. As Powell has made clear, the financial markets are ruled by data now.

Naeem Aslam is chief investment officer at Zaye Capital Markets in London.

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-Naeem Aslam

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November 04, 2025 14:31 ET (19:31 GMT)

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