In last week’s Mailbag, we broke down NVIDIA Corporation’s (NVDA) $5 trillion milestone and why market cap matters more than most traders realize.
And this week, I got a LOT of new questions—some about the Fed’s next move, others about what’s really behind those big daily index swings.
But one in particular stood out… because if you understand it, it could seriously improve the timing (and the turnout) of your trades.
So, let’s dig in…
Q: Tom, thanks for all the education and training… your case studies… your videos… all of it. Do you think the Fed will cut rates again in December?
Great and timely question.
I’ve been tracking the Fed Watch Tool from the CME Group (the same one I use when analyzing interest rate probabilities in real time), and as of now, there’s roughly a 67.8% chance of a 25-basis-point rate cut at the December 2025 meeting.
So yes, it’s not guaranteed… but we’re definitely leaning in that direction.
And if inflation data keeps cooling and the job market doesn’t get too hot, the Fed may very well go through with it.
Q: Ok, but can you remind me again why a rate cut even matters? I know it’s important, but I forget the “why.”
Happy to explain—and you’re not the only one thinking that. We’ve had a lot of traders ask for a quick refresher, so here it is.
There are two big reasons a rate cut matters:
1. It helps fuel economic growth.
Lower interest rates make borrowing cheaper—for businesses and consumers. That can lead to more spending, more hiring, and higher earnings. In turn, that often boosts equity prices and supports bond prices too.
2. It lowers the cost of borrowing.
When the Fed cuts rates, banks tend to lower interest rates on mortgages, car loans, and business loans. That encourages more people and companies to borrow—and spend.
And let’s not forget… the U.S. doesn’t operate in a vacuum.
Global markets pay close attention to what the Fed does. When the Fed signals a cut, it can shift capital flows around the world. So yeah, it’s a big deal.
Q: Tom, I was reading that Boeing dragged the Dow down a hundred points on its own. I thought the Dow had 30 stocks? How does one company move the whole index?
Excellent question! And a perfect setup to get back to the basics.
To answer that, we have to talk about something called “market weighting.”
Most traders hear the term and tune out. But if you want to understand why certain stocks move the markets more than others, then THIS is one of the most important concepts to know.
Let’s start with the Dow.
The Dow Jones Industrial Average (DJIA) is what’s known as a price-weighted index. That means every stock in the Dow isn’t treated equally. Instead, the higher a stock’s price, the more influence it has on the index’s movement—regardless of how big the company actually is.
So, if a $500 stock drops 10 points, it moves the index a lot more than a $100 stock doing the same thing.
Take Microsoft Corporation (MSFT), for example… It’s currently trading around $511.14, which gives it a 6.85% weighting in the Dow. That means one move from MSFT can have an outsized impact compared to lower-priced names.
So yeah, Boeing having a bad day? That can pull the Dow down all by itself.
Here’s why this matters:
If the Dow is having a strong day—or a weak one—it may not be because all 30 stocks are moving the same direction. It might just be a few of the heavyweights making outsized moves that drag the whole index up or down.
And if you know who those heavyweights are?
You can trade smarter.
For example, if Microsoft and Caterpillar (two of the biggest weight contributors) are making strong moves higher, that could signal a potential opportunity to go long on SPDR Dow Jones Industrial Average ETF Trust (DIA), the Dow exchange-traded fund (ETF).
Same thing applies to weakness.
It’s also a great way to spot sector trends. If the top-weighted names in the Dow are all from the industrial or tech sectors and they’re running hot, it might be worth taking a closer look at trades on those sector ETFs too.
So, where do you find this weighting info?
There are several sites that track it, but one I like is indexArb. It breaks down the current weightings of all 30 Dow stocks in one place.
As of this week, the top three are:
👉 The Goldman Sachs Group, Inc. (GS)
👉 Caterpillar Inc. (CAT)
👉 Microsoft Corporation (MSFT)
Just those three stocks can make or break the Dow’s daily move.
Q: Is the Dow the only index like this?
Nope.
While the Dow is price-weighted, the S&P 500 and Nasdaq 100 are both market cap-weighted—and that’s a big distinction.
In a market cap-weighted index, companies with the largest total market value (stock price × number of shares outstanding) have the most influence.
That means giants like Apple Inc. (AAPL), NVDA, and MSFT (again!) carry a ton of weight in the S&P and Nasdaq. When those stocks move, the entire index follows.
So, just like with the Dow, knowing which names carry the most weight gives you insight into what’s really driving the price action.
Q: Are there any other types of weighting out there?
Yes… though they’re less common, they do exist.
You’ve got:
👉 Equal-weighted indexes, where every stock gets the same influence
👉 Fundamentally-weighted indexes, which base weighting on things like earnings or book value instead of price or market cap
Each has its own pros and cons, and depending on your strategy (or your broker’s tools), you might find opportunities there, too.
So, what’s the takeaway from all of this?
If you want to understand why the market is moving (and where it might go next) track the heavyweights.
These high-impact stocks are often the first ones to shake things up. When they move, they pull entire indices with them.
And that kind of influence creates real opportunity—not just in the individual stocks themselves, but in the index and sector ETFs tied to them.
So, before your next trade, take a look at who’s doing the heavy lifting. That one insight could be the edge you’ve been looking for.
Have a great weekend!
Tom Gentile
America’s Pattern Trader
