In Brief
- U.S. stock indexes declined, with the S&P 500 and Nasdaq 100 reaching two-week lows, influenced by significant job cut announcements and weakness in semiconductor stocks.
- A cooling labor market, evidenced by record October job cuts, is fueling expectations of potential Federal Reserve interest rate cuts, limiting stock market declines.
- Strong corporate earnings from S&P 500 companies, with 81% beating Q3 expectations, are providing some support to the market, despite moderating profit growth.
- The ongoing US government shutdown continues to weigh on market sentiment and the economy, delaying economic reports and potentially impacting consumer spending and job growth.
- Legal challenges to former President Trump’s tariffs could have significant financial implications if the Supreme Court rules against them, potentially requiring refunds of over $80 billion.
Market Performance Overview
Major U.S. stock indexes experienced a downturn today. The S&P 500 Index ($SPX) fell by 0.97%, with its ETF counterpart, SPY, also reflecting this decline. The Dow Jones Industrials Index ($DOWI), tracked by DIA, was down 0.76%. The Nasdaq 100 Index ($IUXX), represented by QQQ, saw a more significant drop of 1.61%. Similarly, December E-mini S&P futures (ESZ25) were down 0.98%, and December E-mini Nasdaq futures (NQZ25) declined by 1.63%.
The S&P 500 and Nasdaq 100 both retreated to two-week lows, reflecting broader market weakness. This downward pressure appears to be driven by several key factors impacting investor sentiment.
Labor Market and Economic Signals
A significant contributor to the market’s decline is the latest labor market data. A report from Challenger, Gray & Christmas revealed that U.S. companies announced the highest number of job cuts in October in over two decades. This indicates a cooling labor market, which often leads investors to anticipate potential interest rate adjustments from the Federal Reserve.
US Oct Challenger job cuts surged by 175.3% year-over-year, reaching 153,074. This marks the largest monthly increase in seven months and the highest figure for an October in 22 years. Year-to-date, job cuts have surpassed one million, a level not seen since the pandemic. Furthermore, U.S. employers have announced the fewest hiring plans since 2011, underscoring a significant shift in the employment landscape.
Weakness in semiconductor stocks also played a role in dragging down the broader market indices. This sector often serves as a bellwether for technological advancements and economic health, so its decline can influence overall market sentiment.
Counterbalancing Market Forces
Despite the negative headwinds, declining bond yields are providing some support to U.S. stocks, preventing a steeper fall. The yield on the 10-year Treasury note decreased by 7 basis points to 4.09%. This decline is interpreted as a sign that the Federal Reserve might continue its interest rate cuts, especially following the weak labor report. Investors are closely watching for signs of monetary policy easing.
Additionally, strong corporate earnings are bolstering the market. A significant 81% of S&P 500 companies that have reported their third-quarter earnings have exceeded expectations. This resilience in corporate performance offers a counterpoint to the negative economic signals.
Federal Reserve and Monetary Policy Speculation
Hawkish comments from Chicago Fed President Austan Goolsbee added a layer of uncertainty. Goolsbee expressed unease regarding the Federal Reserve’s ongoing interest rate cuts, particularly due to the lack of inflation data during the government shutdown. This highlights the delicate balance the Fed must strike between managing inflation and supporting economic growth.
Markets are currently pricing in a 69% probability of another 25 basis point rate cut at the upcoming FOMC meeting on December 9-10. This sentiment is largely driven by the expectation that a slowing economy and moderating inflation will allow for further monetary easing.
Legal Scrutiny of Tariffs
The U.S. Supreme Court is reviewing the legality of former President Trump’s reciprocal tariffs. Justices appeared skeptical about the use of an emergency-powers law to impose these tariffs, with Chief Justice Roberts suggesting it encroached upon Congress’s core power to levy taxes. A ruling is expected by late this year or early 2026.
If the Supreme Court upholds lower court decisions that found these tariffs illegal, the U.S. government could be required to refund over $80 billion in collected reciprocal and fentanyl-linked tariffs. Such a ruling would also constrain the executive branch’s ability to impose tariffs outside established trade law sections.
Corporate Earnings Landscape
The Q3 corporate earnings season is proving robust, with 136 S&P 500 companies reporting this week. According to Bloomberg Intelligence, 81% of companies so far have surpassed earnings forecasts, pointing towards the strongest quarter since 2021. However, Q3 profit growth is projected to be +7.2% year-over-year, the lowest in two years, and Q3 sales growth is expected to slow to +5.9% from +6.4% in Q2. This indicates a potential moderation in the pace of earnings expansion.
Impact of the Government Shutdown
The prolonged U.S. government shutdown, now in its sixth week, is the longest in history. This ongoing situation is negatively impacting market sentiment and the broader U.S. economy. The shutdown is delaying the release of numerous government reports and is having an adverse effect on economic activity.
International Market Performance
Overseas stock markets showed mixed performance today. The Euro Stoxx 50 declined by 0.63%. In Asia, China’s Shanghai Composite closed higher, up 0.97%, while Japan’s Nikkei Stock 225 also finished with gains, rising 1.34%.
Focus on Interest Rates
December 10-year U.S. Treasury notes (ZNZ5) saw gains of +15 ticks, with the 10-year T-note yield falling 7.0 basis points to 4.089%. The upward movement in T-notes was largely driven by the weak labor news from Challenger, which reinforced optimism for continued Fed rate cuts. Additionally, a drop in the 10-year breakeven inflation rate to a one-week low of 2.287% suggests falling inflation expectations.
The ongoing U.S. government shutdown also provides underlying support for T-notes, as it could lead to further economic slowdown, potentially prompting the Fed to maintain its interest rate cutting cycle.
European government bond yields also trended lower. The 10-year German bund yield decreased by 1.8 basis points to 2.655%, and the 10-year UK gilt yield fell by 2.9 basis points to 4.434%.
💡 Eurozone September retail sales unexpectedly decreased by 0.1% month-over-month, contrary to the expected 0.2% increase. German September industrial production rose by 1.3% month-over-month, falling short of the expected 3.0% increase.
ECB Vice President Guindos noted a degree of resilience in the European economy, with growth exceeding earlier projections. He also described the inflation news as positive, especially appreciating service price trends.
The Bank of England maintained its official bank rate at 4.00%. Governor Bailey stated that while rates are on a gradual downward path, certainty that inflation is on track for the 2% target is required before further cuts.
Swaps indicate only a 4% chance of a 25 basis point rate cut by the ECB at its December 18 policy meeting.
Notable U.S. Stock Movers
Declining Stocks
The semiconductor sector was a significant drag on the market. Advanced Micro Devices (AMD) dropped over 7%, and Qualcomm (QCOM) fell more than 4%. Other notable decliners included ARM Holdings Plc (ARM), Intel (INTC), Lam Research (LRCX), Applied Materials (AMAT), and Nvidia (NVDA), all down over 2%. GlobalFoundries (GFS), ON Semiconductor (ON), and NXP Semiconductors NV (NXPI) also saw losses exceeding 1%.
Elf Beauty (ELF) plunged over 32% after forecasting 2026 adjusted EPS of $2.80 to $2.85, substantially below the consensus estimate of $3.53.
Duolingo (DUOL) declined by more than 29% following a Q4 bookings forecast of $329.5 million to $335.5 million, significantly lower than the $344.1 million consensus.
DoorDash (DASH) led S&P 500 and Nasdaq 100 losers, falling over 15%. Its Q4 adjusted EBITDA forecast of $710 million to $810 million had a midpoint below the $802.7 million consensus.
CarMax (KMX) dropped more than 15% after reporting preliminary Q3 EPS between 18 and 26 cents, far below the 69-cent consensus. The company also announced the termination of its CEO, effective December 1.
Paycom Software (PAYC) was down over 11% after reporting Q3 adjusted EPS of $1.94, slightly below the $1.96 consensus.
Fortinet (FTNT) fell over 7%, projecting full-year service revenue of $4.58 billion to $4.60 billion, below the $4.61 billion consensus.
Becton Dickinson & Co. (BDX) decreased by over 3% after its 2026 adjusted EPS forecast of $14.75 to $15.05 had a midpoint below the $14.92 consensus.
Advancing Stocks
Datadog (DDOG) surged over 21%, leading S&P 500 and Nasdaq 100 gainers, after raising its full-year adjusted EPS forecast to $2.00-$2.02, surpassing the $1.84 consensus.
Coherent (COHR) climbed over 15% following stronger-than-expected Q1 revenue of $1.58 billion and a Q2 revenue forecast midpoint above the $1.56 billion consensus.
Air Products and Chemicals (APD) rose over 10% after its 2026 adjusted EPS forecast of $12.85 to $13.15 came in above the $12.89 consensus.
Lyft Inc (LYFT) increased by more than 6% after reporting Q3 gross bookings of $4.78 billion, exceeding the $4.76 billion consensus, and providing a Q4 forecast that also surpassed expectations.
Cummins (CMI) gained over 6% after reporting Q3 net sales of $8.32 billion, stronger than the $8.00 billion consensus.
Parker-Hannifin (PH) was up more than 6% with Q1 net sales of $5.10 billion beating the $4.94 billion consensus.
Rockwell Automation (ROK) advanced over 4% after reporting Q4 sales of $2.32 billion, exceeding the $2.20 billion consensus.
AppLovin (APP) rose more than 2% after its Q3 revenue of $1.41 billion beat the $1.34 billion consensus, and its Q4 revenue forecast was also stronger than anticipated.
Expert Summary
U.S. stock markets experienced a notable decline, influenced by a weak jobs report and concerns in the semiconductor sector. However, decreasing bond yields and strong corporate earnings provided some market stabilization. Investors are weighing economic signals against the potential for Federal Reserve interest rate adjustments and the ongoing impact of the government shutdown.
