Judging by the current situation, the market has already fully priced in the Fed’s upcoming rate cut expectations—right now, the probability of a rate cut in September has soared to 86%, which is almost as good as being set in stone.

But here’s the catch: this round of expectations has long been absorbed by smart money. Just look at how the US stock market has been surging over the past three months, and how Bitcoin skyrocketed from 60,000 to 120,000—big players got on board and secured their seats early. By the time the actual rate cut happens, we’ll likely see the classic “sell the news” scenario.

To use an imperfect analogy: it’s like someone spreading the word that there will be perks at an event at midnight, so everyone lines up in the middle of the night. When the time comes, they realize the perks are extremely limited—the people at the front wasted their night, and those in the back never had a chance. That’s the market logic—once expectations have been fully speculated on, reality often falls short.

Looking through historical data, you’ll find that when rate cut expectations exceed 80% and are actually delivered, the S&P 500 has a more than 60% chance of pulling back in the following week. The worst hit are those using high leverage—the benefit of a 25 basis point cut might not even be enough to cover their liquidation losses.

So, rate cut expectations are a double-edged sword. Don’t just blindly go all-in on the news; the market never lacks for “bag holders” who buy at the top. Hopefully, your portfolio allocation is robust enough to withstand the selling pressure when the good news is finally realized.

(This article is for market observation only and does not constitute any investment advice.)