2025 Arbitrage Market Wrap - Part 2

If you have not read yesterday's blog post, please read it before continuing here.

6. Retail buys the dip, and embarrasses the "smart money" narrative

Retail behavior stayed stubborn: buy weakness, ignore the fear, rinse and repeat. Data cited by Yahoo Finance (via VandaTrack) said the week after "Liberation Day" saw record dip-buying flows from retail investors, including $3B net purchases on April 3.  Vanda's own commentary later in the year echoed the same pattern: retail repeatedly stepped in on selloffs.

7. The Fed pivot, "phantom inflation," and the rate path that finally mattered

The Fed delivered the year's most important "macro trendline." On December 10, 2025, the Fed cut the target range to 3.50%-3.75%.  Reuters later noted that the cut left policy "in a good position" heading into 2026, even as debate continued internally. And the "phantom inflation" argument became part of the mainstream policy conversation, with the FT covering criticism that certain inflation components may be distorting the policy picture. The Fed will be a hot news topic next year with POTUS picking a new chair and unemployment on the rise.

8. Gold hits $4,000 and turns into the cleanest trend of the year

Gold didn't just rally; it marched. The World Gold Council noted gold hit $4,000/oz on October 8, 2025, describing a rapid move from $3,500 to $4,000 in just 36 days, with drivers including dollar weakness and expectations of further Fed cuts. Gold is the benchmark for the debasement trade. Will it continue into 2026?

9. Bonds quietly have their best year since 2020

While everyone argued about stocks, bonds put up a real year. Fox Business reported the Bloomberg U.S. Aggregate Bond Index returned about 6.7% in 2025, on pace for its best year since 2020. Carson Group made the same point, with the Agg around 7% at one point in December.

10. The shutdown + extreme positioning: delayed data, low cash, and crowded trades

A late-year curveball: the 43-day U.S. government shutdown delayed key jobs data and added noise to macro reads. At the same time, the positioning looked stretched. The FT reported Bank of America's survey showed cash allocations falling to a record low (3.3%), a classic "everyone is already in" signal.

What 2025 Actually Taught Us

2025 reminded everyone that markets don't move on "truth" - they move on positioning, liquidity, and surprise. Tariff shocks got erased, AI leadership got even more concentrated, the dollar finally mattered again, and even the "boring" stuff like bonds and gold turned into real trades.

Now the setup flips to 2026: does the market keep rewarding dip buyers, does leadership broaden, and does the next big move come from rates... or from something nobody is even watching yet?