Quick Summary
- US stock indexes declined on Thursday, with major indices like the S&P 500, Dow Jones Industrials, and Nasdaq 100 reaching two-week lows.
- Significant job cuts announced in October, the highest for the month in over two decades, contributed to a risk-off sentiment.
- Declining bond yields and strong corporate earnings provided some support to the market, with 81% of S&P 500 companies beating Q3 earnings expectations.
- Hawkish comments from Federal Reserve officials and concerns over the ongoing US government shutdown added to market pressures.
- Weakness in semiconductor stocks notably impacted the broader market, with several major players experiencing significant declines.
US Stocks Retreat Amidst Labor Market Concerns and Hawkish Fed Commentary
US stock indexes experienced a downturn on Thursday, leading to the S&P 500, Dow Jones Industrials, and Nasdaq 100 closing at two-week lows. This decline was largely influenced by concerning labor market data and pronouncements from Federal Reserve officials that tempered investor optimism.
The markets reacted to a report from outplacement firm Challenger, Gray & Christmas, which revealed that US companies announced the most job cuts in October in over two decades. This significant surge in layoffs, coupled with a broader weakness observed in semiconductor stocks throughout the day, weighed heavily on the overall market performance.
Economic Indicators and Corporate Performance
💡 The US recorded a significant surge in October job cuts, increasing by 175.3% year-over-year to 153,074. This marks the largest monthly increase in job cuts in seven months and the highest figure for an October in 22 years.
📊 Year-to-date job cuts have surpassed one million, the highest since the pandemic, while US employers have announced the fewest hiring plans since 2011.
Despite the negative sentiment stemming from the labor market, a decline in bond yields offered some respite to stocks. The yield on the 10-year T-note fell by 7 basis points to 4.09%, driven by expectations that the Federal Reserve might continue its interest rate cuts following the weak labor report.
📊 Corporate earnings also provided a supportive narrative, with 81% of S&P 500 companies reporting third-quarter earnings that exceeded expectations, signaling robust corporate profitability.
Federal Reserve Stance and Interest Rate Outlook
⚡ Hawkish commentary from Federal Reserve officials on Thursday introduced uncertainty into the market. Chicago Fed President Austan Goolsbee expressed unease regarding the lack of inflation data due to the government shutdown, which complicates the Fed’s approach to interest rate adjustments.
Similarly, Cleveland Fed President Beth Hammack reiterated concerns about high inflation, advocating for a stance that leans against it. She emphasized the need for a mildly restrictive policy rate to ensure inflation returns to the 2% target in a timely manner.
📈 The market currently discounts a 69% probability of a further 25 basis point rate cut at the upcoming FOMC meeting scheduled for December 9-10.
Legal Challenges and Trade Policy
The US Supreme Court is reviewing the legality of President Trump’s reciprocal tariffs, hearing arguments that suggest skepticism regarding their foundation. Chief Justice Roberts and Justices Gorsuch and Coney questioned the use of an emergency-powers law to impose these tariffs, with Roberts noting that levying taxes has traditionally been a congressional prerogative.
A ruling is anticipated by late 2025 or early 2026. Lower courts have previously found these tariffs, imposed under the 1977 International Emergency Economic Powers Act, to be unlawful. Should the Supreme Court uphold these decisions, the US government might be required to refund over $80 billion in collected reciprocal and fentanyl-linked tariffs. This could also restrict the President’s future ability to impose tariffs to only those based on established US trade law provisions, such as Sections 232, 301, and 201.
Q3 Earnings Season and Economic Environment
Q3 corporate earnings season continued to show strength, with 136 S&P 500 companies reporting results this week. According to Bloomberg Intelligence, a significant 81% of these companies have surpassed earnings forecasts, positioning this quarter for its best performance since 2021.
However, the pace of profit growth is moderating, with Q3 profits expected to rise by 7.2% year-over-year, marking the smallest increase in two years. Similarly, Q3 sales growth is projected to slow to 5.9% year-over-year, down from 6.4% in Q2.
📍 The ongoing US government shutdown, now in its sixth week, is the longest in history and is exerting downward pressure on market sentiment and the economy. The shutdown is delaying the release of numerous government reports and negatively impacting economic activity.
Global Market Performance
Overseas stock markets presented a mixed performance on Thursday. The Euro Stoxx 50 index closed down 1.02%. In contrast, China’s Shanghai Composite rose by 0.97%, and Japan’s Nikkei Stock 225 saw a gain of 1.34%.
Interest Rates Update
US Treasury Market
December 10-year T-notes (ZNZ5) finished Thursday’s trading session with a gain of 16 ticks, as the 10-year T-note yield decreased to 4.091%. This rally in T-notes was fueled by the weak Challenger labor report, which indicated that US employers shed the most jobs in October in 22 years. This data bolstered expectations for continued Federal Reserve interest rate cuts.
The decline in the 10-year breakeven inflation rate to a one-week low of 2.283% on Thursday also contributed to the upward momentum in T-notes, suggesting a cooling of inflation expectations.
💡 The ongoing, historic US government shutdown adds underlying support to T-notes. Potential consequences include increased job losses, reduced consumer spending, and a weakened US economy, which could provide further justification for the Federal Reserve to maintain its course of interest rate reductions.
European Bond Market
European government bond yields also trended lower on Thursday. The yield on the 10-year German bund fell by 2.3 basis points to 2.650%, while the 10-year UK gilt yield decreased by 2.9 basis points to 4.433%.
Eurozone retail sales for September unexpectedly declined by 0.1% month-over-month, contrary to the anticipated 0.2% increase ($EUR-RETAIL-SALES-INDEX). German industrial production for September saw a rise of 1.3% month-over-month, falling short of the expected 3.0% increase ($DE-IP-IY-M).
ECB Vice President Guindos noted a degree of resilience in the European economy, with growth exceeding initial projections. He also highlighted positive inflation news, particularly the stabilizing trend in service price increases.
The Bank of England (BOE) maintained its official bank rate at 4.00%, as widely expected. BOE Governor Bailey stated that while rates are on a path toward gradual reduction, certainty regarding inflation’s trajectory to the 2% target is required before further cuts are implemented.
📈 Market-based indicators suggest a 4% probability of a 25 basis point rate cut by the ECB at its upcoming policy meeting on December 18.
US Stock Movers
Semiconductor Sector Weakness
The broader market was negatively impacted by a significant downturn in the semiconductor sector. Key players experienced notable declines, including Advanced Micro Devices (AMD) down over 7%, and Nvidia (NVDA), Qualcomm (QCOM), Applied Materials (AMAT), and GlobalFoundries (GFS) all falling more than 3%. Intel (INTC), Microchip Technology (MCHP), and ON Semiconductor (ON) saw losses exceeding 2%, while NXP Semiconductors NV (NXPI), Lam Research (LRCX), and KLA Corp (KLAC) dropped by over 1%.
Notable Individual Stock Performance
Elf Beauty (ELF) plunged over 34% after issuing 2026 adjusted EPS guidance of $2.80 to $2.85, significantly below the consensus estimate of $3.53.
Duolingo (DUOL) dropped more than 26% following a Q4 bookings forecast of $329.5 million to $335.5 million, substantially below the consensus of $344.1 million.
CarMax (KMX) fell over 25% after reporting preliminary Q3 EPS between 18 cents and 26 cents, well under the 69-cent consensus, and announcing the termination of its CEO.
DoorDash (DASH) led the decliners in the S&P 500 and Nasdaq 100, dropping over 17%. The company forecast Q4 adjusted EBITDA between $710 million and $810 million, with the midpoint below the consensus estimate of $802.7 million.
Paycom Software (PAYC) closed down over 11% after reporting Q3 adjusted EPS of $1.94, slightly missing the $1.96 consensus.
Robinhood Markets (HOOD) experienced a decline of over 10% after raising its full-year adjusted operating expenses and share-based compensation forecast to $2.28 billion from a previous range of $2.15 billion to $2.25 billion.
Fortinet (FTNT) fell more than 6% after projecting full-year service revenue between $4.58 billion and $4.60 billion, falling short of the $4.61 billion consensus.
Datadog (DDOG) emerged as a top performer, rising over 23% to lead gainers in the S&P 500 and Nasdaq 100. The company increased its full-year adjusted EPS forecast to $2.00-$2.02, up from a previous estimate of $1.80-$1.83 and surpassing the consensus of $1.84.
Coherent (COHR) climbed over 18% after reporting Q1 revenue of $1.58 billion, exceeding the $1.54 billion consensus, and forecasting Q2 revenue between $1.56 billion and $1.70 billion, with the midpoint above expectations.
Air Products and Chemicals (APD) saw a gain of over 8% after forecasting 2026 adjusted EPS between $12.85 and $13.15, with the midpoint higher than the $12.89 consensus.
Parker-Hannifin (PH) increased by over 7% following Q1 net sales of $5.10 billion, surpassing the $4.94 billion consensus.
STERIS Plc (STE) rose more than 6% after raising its 2026 adjusted EPS from continuing operations forecast to $10.15-$10.30, up from a previous range of $9.90-$10.15.
Lyft Inc (LYFT) gained over 5% after reporting Q3 gross bookings of $4.78 billion, exceeding the $4.76 billion consensus, and projecting Q4 gross bookings between $5.01 billion and $5.13 billion, better than the $5.01 billion consensus.
Cummins (CMI) rose more than 5% after reporting Q3 net sales of $8.32 billion, stronger than the $8.00 billion consensus.
Rockwell Automation (ROK) closed up over 2% after reporting Q4 sales of $2.32 billion, exceeding the $2.20 billion consensus.
Expert Summary
Thursday saw major US stock indexes decline, influenced by record October job cuts and hawkish Federal Reserve commentary. While strong corporate earnings provided some support, concerns over economic slowdown and interest rate policies persisted. The semiconductor sector experienced notable weakness, contributing to the overall market downturn.