Wall Street Looks Past Tech Drop Amid Fed-Cut Bets: Markets Wrap
(Bloomberg) — More evidence of a slowdown in the US jobs market reinforced bets the Federal Reserve will cut interest rates in its final policy meeting of 2025, driving stocks higher as bond yields fell alongside the dollar.
About 350 shares in the S&P 500 rose despite weakness in most megacaps. Microsoft Corp. pared losses after saying aggregate sales quotas for artificial-intelligence products haven’t been reduced. The shares sank as much as 3% on a report it lowered expectations for getting business customers to spend money on the cloud unit’s marketplace for AI models and agents.
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Treasuries rose across the curve, sending two-year yields below 3.5%. The greenback was set for its worst day since September, falling against all major currencies.
US companies shed payrolls in November by the most since early 2023, adding to concerns about weakening in the labor market. Services activity expanded at a slightly faster pace, while a measure of prices paid dropped to a seven-month low.
Policymakers have been torn as to whether they’ll cut rates for a third straight meeting as they attempt to balance the slowdown in the job market with still-elevated inflation. Investors, however, widely expect the Fed to lower borrowing costs next week.
“The faltering labor market will be the focus for the Fed at their December meeting,” said Jeff Roach at LPL Financial. “Since earlier this year when we started to see a material weakening in the jobs market, I have believed labor demand is weak enough for the Fed to cut, including this month.”
The S&P 500 hovered near 6,850, rising for the seventh time in eight sessions. The yield on two-year Treasuries fell two basis points to 3.49%. The dollar slid 0.4%. Bitcoin topped $92,000.
“This week’s data is largely confirming what traders already suspected: US data is cooling at the margin, and nothing this week is likely to change the market’s conviction that the Fed is heading towards a December cut,” said Fawad Razaqzada at Forex.com.
Even if ADP had popped higher, the timing works against the dollar, he said.
“This keeps the greenback vulnerable to further downside – particularly against lower-yielders like the yen, where the bond markets are pointing to strength for the currency,” Razaqzada noted.
The market is now pricing a more than 90% likelihood of a 25-basis-point reduction by the Fed at its policy meeting next week, up from around 25% just under two weeks ago, noted Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.
“We are positive on quality bonds, specifically high grade government and investment grade corporate bonds,” she said. “Medium-duration quality bonds (four to seven years) should deliver mid-single-digit returns from a mix of yield and capital appreciation as the Fed cuts rates, in our view.”
Bond returns look set to exceed cash rates, based on our forecasts, especially in adverse scenarios where bond prices rise as rate expectations fall, Hoffmann-Burchardi added.
Private-sector payrolls decreased by 32,000, according to ADP Research data. The median estimate of economists called for a 10,000 gain.
“This morning’s ADP data confirm what a lot of the doves are saying – it’s more important to focus on a weakening labor market than to worry about inflation,” said Chris Zaccarelli at Northlight Asset Management. “Although there may be some dissents at next week’s Fed meeting, it is a sure thing that a 25 basis-point rate cut will be announced.”
But going forward is where things get more confusing, he noted.
“Our expectation is that the doves will win out and we will see a number of rate cuts next year, but we think they may be more spaced out and potentially less cuts will be made than are currently being forecast, which is why we are bullish into the new year, but more cautious once we arrive in 2026,” he said.
Today’s ADP data keeps a December rate cut thoroughly in play, according to David Russell at TradeStation.
“Main street is hurting as months of uncertainty and tariffs take a toll. AI is supporting parts of the economy, but many small businesses don’t benefit,” he said. “The fact wages aren’t falling suggests this is a crisis of confidence in parts of the economy, and not the result of an actual recession.”
“The message is clear: US job creation has given another sign of stalling,” said Florian Ielpo at Lombard Odier Asset Management.
The latest jobs reading still appears to support the ongoing rally, fueled by a duration effect – lower long-term yields driven down by Fed cut expectations act as an apparent risk-on catalyst for equities, Ielpo noted.
“However, this is only superficial – the key question now is: what will the Fed actually do with this data given such a divided board of voters? Monday’s Industry ISM and today’s ADP report are screaming ‘cuts!’ and markets will likely echo this sentiment,” he said.
The modest fall in the ADP payrolls measure in November, coming on the back of a similar message from the Fed’s Beige Book, should be enough to persuade Fed officials to vote for another cut next week, according to Stephen Brown, at Capital Economics.
Looking through the month-on-month volatility, however, Brown noted that the broader message from the alternative indicators appears to be that labor market conditions are stable rather than deteriorating markedly.
“Accordingly, the Fed is still likely to accompany a further cut next week with more hawkish messaging about the prospect for future loosening,” he said.
His Capital Economics colleague Thomas Ryan said he expects concerns over softening labor market conditions among the doves on the Federal Open Market Committee to win out next week, resulting in another 25 basis-point cut.
“But in return, the more hawkish members are likely to secure language in the policy statement about the prospect of a pause in the new year,” Ryan noted.
While the most-recent US government report showed a larger-than-expected rise in payrolls, the gain was concentrated in just a few industries. The unemployment rate ticked up to an almost four-year high, and there’s been a steady drumbeat of layoff news from companies.
“Right now, the data argues for additional Fed funds rate cuts. US labor demand is weak, consumer spending is showing early signs of cracking, and upside risks to inflation are fading,” said Elias Haddad at Brown Brothers Harriman & Co.
Before their final policy meeting of the year, Fed officials will get a dated reading on their preferred inflation gauge. On Friday, the Bureau of Economic Analysis releases its September income and spending report — long delayed because of the government shutdown.
The figures will include the personal consumption expenditures price index and a core measure that excludes food and energy. Economists project a third-straight 0.2% increase in the core index. That would keep the year-over-year figure hovering just below 3%, a sign that inflationary pressures are stable, yet sticky and above the Fed’s goal.
The soft survey data continue to paint a downbeat picture, but the behavior of consumers and businesses tells a very different story, according to Mark Hackett at Nationwide. That’s why he believes Friday’s income, spending and PCE data will matter far more than what people say in surveys.
“Fundamentally, this still looks like a ‘buy-the-dip’ market: the backdrop is strong, technicals have snapped back and the valuation problem is really confined to mega-cap tech,” he said.
Corporate Highlights:
Nvidia Corp. is on the verge of securing a massive lobbying win after US lawmakers kept a measure out of must-pass defense legislation that would have limited the company’s ability to sell their advanced artificial intelligence chips to China and other adversary nations. Marvell Technology Inc. reassured investors that its custom chip-design unit is winning repeat orders, signaling continued growth as the company benefits from runaway spending on AI computing. The London Stock Exchange Group Plc has agreed a deal with OpenAI that will give ChatGPT access to its licensed financial news and data. Delta Air Lines Inc. expects to take a $200 million profit hit in the final quarter after the carrier was forced to slash flights due to the recent record government shutdown. American Eagle Outfitters Inc. posted third-quarter results that outpaced expectations and raised its outlook as the apparel chain pivots quickly from weakness earlier this year. Uber Technologies Inc. is launching autonomous rides with Avride Inc. in Dallas as part of a previously announced partnership, marking the latest US city where the ride-hailing giant is offering such a service. Capricor Therapeutics Inc. said its experimental drug helped patients with a deadly muscle disorder in a key trial, a finding it said could help overturn an earlier rejection by US regulators. Binance Holdings Ltd. named co-founder Yi He as co-chief executive officer in the biggest change to its top leadership since Changpeng Zhao stepped down from running the crypto exchange two years ago. Royal Bank of Canada beat estimates on strong results in its capital-markets and wealth-management divisions, capping off a year of brisk trading activity, and set higher targets for returns on shareholders’ capital. National Bank of Canada beat estimates on better-than-expected results at its capital-markets unit in the fiscal fourth quarter, a resurgence for the division after it posted strong results earlier in the year but missed forecasts in the previous quarter. Glencore Plc outlined plans to almost double copper production over the next decade as the miner seeks to reverse a slump in output, although it was also forced to lower its ambitions for next year. Glencore will design and possibly develop a new copper smelter in Chile as the Swiss commodities giant looks to increase its exposure to a metal projected to be in short supply. Hugo Boss AG forecast a decline in sales and earnings next year as the German fashion house seeks to recover from a challenging period by streamlining its product range and raising prices. An Hermès heir is suing conglomerate LVMH and its billionaire CEO Bernard Arnault in a Paris civil court in a bid to recover about €14 billion ($16.3 billion) for his alleged lost shares in the maker of Birkin handbags. Zara owner Inditex SA’s sales accelerated in November, highlighting its resilience in the face of weakening consumer sentiment that’s hitting many of its peers. ByteDance Ltd.’s TikTok will invest more than 200 billion reais ($37.7 billion) to build a data center in Brazil, marking its first project in Latin America. At least three investors in a China Vanke Co. bond maturing this month have signaled to the embattled developer that they will oppose a plan to delay repayment, people familiar with the matter said. What Bloomberg strategists say…
“After notably diverging from terminal-rate wagers last month, the dollar has now reversed course and is better aligned with expectations of a more accommodating Fed in the coming months. That leaves the greenback on weaker footing globally, particularly as other central banks pause or consider further tightening.”
— Tatiana Darie, Macro Strategist, Markets Live. For the full analysis, click here.
Some of the main moves in markets:
Stocks
The S&P 500 rose 0.3% as of 2 p.m. New York time The Nasdaq 100 rose 0.1% The Dow Jones Industrial Average rose 0.9% The MSCI World Index rose 0.4% Bloomberg Magnificent 7 Total Return Index rose 0.5% The Russell 2000 Index rose 1.5% Microsoft fell 2% Currencies
The Bloomberg Dollar Spot Index fell 0.4% The euro rose 0.4% to $1.1672 The British pound rose 1% to $1.3348 The Japanese yen rose 0.5% to 155.13 per dollar Cryptocurrencies
Bitcoin rose 1.1% to $92,580.29 Ether rose 3.9% to $3,114.58 Bonds
The yield on 10-year Treasuries declined three basis points to 4.06% Germany’s 10-year yield was little changed at 2.75% Britain’s 10-year yield declined two basis points to 4.45% The yield on 2-year Treasuries declined two basis points to 3.49% The yield on 30-year Treasuries declined two basis points to 4.73% Commodities
West Texas Intermediate crude rose 0.8% to $59.10 a barrel Spot gold fell 0.2% to $4,197.56 an ounce ©2025 Bloomberg L.P.
