Markets Rally as Cooling Jobs Data Cements December Rate Cut Bets
Wall Street ended the week higher as investors responded to a labor report that suggests the economy is decelerating without crashing. The S&P 500 reclaimed ground after Friday data showed the U.S. labor market is cooling faster than anticipated. This effectively clears the path for a rate cut at the upcoming FOMC meeting.
Why this matters
Bad news is treated as good news
The Bureau of Labor Statistics reported the U.S. added 115,000 jobs in November. This missed the consensus forecast of 160,000. The unemployment rate rose to 4.4%. Markets surged because this data removes the fear of an overheating economy. Traders now price in an 85% chance of a cut on December 17.
Discount-driven holiday volume
Cyber Week spending hit a record $39 billion. However, this growth relied on steep discounting and increased use of Buy Now, Pay Later services. Consumers are spending, but they demand price cuts averaging 30%. This dynamic suggests revenue is flowing but profit margins for retailers will likely contract in Q4.
Tech sector sensitivity
The prospect of lower interest rates reversed losses seen in mid-November. Lower bond yields increase the present value of future cash flows. This mechanic specifically benefits high-growth AI and software companies. The Nasdaq outperformed broader indices as capital rotated back into large-cap tech.
What to watch
Inflation confirmation (CPI)
The Consumer Price Index report is due Wednesday, December 10. Given the recent decline in oil prices, headline inflation is expected to be soft. A low print would make a December rate cut highly probable.
Fed silence
Officials have entered their blackout period ahead of the December 16-17 meeting. Volatility could spike if data surprises to the upside because no officials will be available to manage market expectations.
Small cap movements
The Russell 2000 is sensitive to interest rates due to high reliance on floating-rate debt. If the market conviction on rate cuts is genuine, this sector typically begins to outperform large-cap tech.
