Stocks Settle Higher as US Economic News Lifts Fed Rate Cut Expectations

The S&P 500 Index ($SPX) (SPY) on Tuesday closed up by +0.91%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up by +1.43%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.58%.  December E-mini S&P futures (ESZ25) rose +0.90%, and December E-mini Nasdaq futures (NQZ25) rose +0.56%.

Stock indexes shook off early losses on Tuesday and settled higher, with the Dow Jones Industrials posting a 1-week high.  Dovish US economic news on Tuesday knocked bond yields lower, strengthened the case for the Fed to cut interest rates at next month’s FOMC meeting, and pushed stocks higher.  Sep retail sales and Sep core PPI rose less than expected, ADP's weekly data showed private payrolls declined, and Nov consumer confidence fell more than expected, knocking the 10-year T-note yield to a 3.5-week low of 3.99% and increasing the chance of a Fed rate cut at the December 9-10 FOMC meeting to 80%.

Stocks initially opened lower on Tuesday after Nvidia fell more than -2% to weigh on chip stocks after The Information reported that Meta Platforms is in talks to spend billions on Google’s AI chips, known as tensor processing units (TPUs), in data centers in 2027.  An agreement would suggest that Google is making headway in efforts to rival Nvidia’s AI accelerator chips and would help establish TPUs as an alternative to Nvidia’s chips. 

US Sep retail sales rose +0.2% m/m, weaker than expectations of +0.4% m/m.  Sep retail sales ex-autos rose +0.3% m/m, right on expectations.

US Sep PPI final demand rose +2.7% y/y, stronger than expectations of +2.6% y/y.  However, Sep PPI ex-food and energy rose +2.6% y/y, weaker than expectations of +2.7% y/y.

The US Sep S&P CaseShiller composite-20 home price index rose +1.36% y/y, weaker than expectations of +1.40% y/y and the smallest pace of increase in more than two years.

The latest weekly update from ADP showed US private payrolls fell -13,500 a week, on average, in the four weeks ending November 8.

The Conference Board US Nov consumer confidence index fell -6.8 to a 7-month low of 88.7, weaker than expectations of 93.3.

US Oct pending home sales rose +1.9% m/m, stronger than expectations of +0.2% m/m.

The Bureau of Labor Statistics (BLS) canceled its October consumer price report last Friday and said the November report will be released on December 18.  Last Wednesday, the BLS said it would not publish an October employment report and noted that it would incorporate those payroll figures into the November report, scheduled for publication on December 16. 

The markets will look to this week’s economic news for direction. Wednesday brings weekly initial unemployment claims (expected +5,000 to 225,000), Sep capital goods new orders nondefense ex-aircraft and parts (expected +0.2% m/m), the Nov MNI Chicago PMI (expected unchanged at 43.8), and the Fed Beige Book. 

The markets are discounting an 80% chance of another -25 bp rate cut at the next FOMC meeting on December 9-10.

Q3 corporate earnings season is drawing to a close as 475 of the 500 S&P companies have released results.  According to Bloomberg Intelligence, 83% of reporting S&P 500 companies exceeded forecasts, on course for the best quarter since 2021.  Q3 earnings rose +14.6%, more than doubling expectations of +7.2% y/y. 

Overseas stock markets settled higher on Tuesday.  The Euro Stoxx 50 closed up +0.82%.  China’s Shanghai Composite closed up +0.87%.  Japan’s Nikkei Stock 225 closed up +0.07%.

Interest Rates

December 10-year T-notes (ZNZ5) on Tuesday closed up by +8.5 ticks.  The 10-year T-note yield fell -2.3 bp to 4.002%.  Dec T-notes climbed to a 1-month high on Tuesday, and the 10-year T-note yield fell to a 3.5-week low of 3.987%.  T-notes found support after Tuesday’s US economic news showed that Sep retail sales and Sep core PPI rose less than expected, weekly ADP data showed private payrolls declined, and Nov consumer confidence fell more than expected, all of which are dovish for Fed policy.  Also, falling inflation expectations are bullish for T-notes after the 10-year breakeven inflation rate fell to a 7.25-month low of 2.212% on Tuesday.  T-notes jumped to their highs Tuesday afternoon on strong demand for the Treasury’s $70 billion auction of 5-year T-notes, which had a bid-to-cover ratio of 2.41, above the 10-auction average of 2.37.

Tuesday’s rally in stocks limited gains in T-notes.  Also, supply pressures are negative for T-notes as the Treasury auctioned $28 billion 2-year floating rate notes and $70 billion 5-year T-notes on Tuesday as part of this week’s slate of $211 billion in T-notes and floating-rate note auctions.  

European government bond yields moved lower on Tuesday.  The 10-year German bund yield dropped to a 1-week low of 2.665% and finished down -2.0 bp to 2.672%.  The 10-year UK gilt yield fell to a 1-week low of 4.483% and finished down -4.3 bp to 4.494%.

Swaps are discounting a 2% chance for a -25 bp rate cut by the ECB at its next policy meeting on December 18.

US Stock Movers

Strength in the Magnificent Seven Technology stocks, sans Nvidia, was a supportive factor for the overall market.  Meta Platforms (META) closed up more than +3%, and Alphabet (GOOGL) and Amazon.com (AMZN) closed up more than +1%.  Also, Microsoft (MSFT) closed up +0.63%, Apple (AAPL) closed up +0.38%, and Tesla (TSLA) closed up +0.39%.

Home builders and home building suppliers rallied on Tuesday after the 10-year T-note yield fell to a 3.5-week low of 3.99%, a supportive factor for housing demand.  Builders FirstSource (BLDR) closed up more than +8%, and DR Horton (DHI), Toll Brothers (TOL), and Lennar (LEN) closed up more than +6%.  Also, PulteGroup (PHM) closed up more than +5% and Mohawk Industries (MHK) closed up more than +4%.  

Casino stocks moved higher on Tuesday after the Nevada Gaming Control Board reported that October Las Vegas Strip gambling revenue rose 8.2% y/y to $748.9 million.  MGM Resorts International (MGM) and Penn Entertainment (PENN) closed up more than +5%.  Also, Caesars Entertainment (CZR) closed up more than +4%, Wynn Resorts Ltd (WYNN) closed up more than +3%, and Las Vegas Sands (LVS) closed up more than +2%. 

Kohl’s (KSS) closed up more than +42% after reporting Q3 met sales of $3.41 billion, better than the consensus of $3.33 billion, and raising its full-year comparable sales forecast to -2.5% to -3.0% from a previous forecast of -4% to -5%, above the consensus of -4.19%.

Symbotic (SYM) closed up more than +39% after reporting Q4 revenue of 618.5 million, better than the consensus of $605.1 million, and forecasting Q1 revenue of $610 million to $630 million, well above the consensus of $606.8 million.

Amentum Holdings (AMTM) closed up more than +18% after reporting Q4 pro forma revenue of $3.93 billion, stronger than the consensus of $3.61 billion.

Keysight Technologies (KEYS) closed up more than +10% to lead gainers in the S&P 500 after reporting Q4 revenue of $1.42 billion, stronger than the consensus of $1.38 billion, and forecasting Q1 revenue of $1.53 billion to $1.55 billion, well above the consensus of $1.42 billion. 

Zoom Communications (ZM) closed up more than +9% after reporting Q3 revenue of $1.23 billion, above the consensus of $1.21 billion, and raising its 2026 revenue forecast to $4.85 billion-$4.86 billion from a previous estimate of $4.83 billion-$4.84 billion, better than the consensus of $4.83 billion.

Analog Devices (ADI) closed up more than +5% to lead gainers in the Nasdaq 100 after reporting Q4 revenue of $3.08 billion, stronger than the consensus of $3.02 billion, and forecasting Q1 revenue of $3.0 billion to $3.2 billion, above the consensus of $2.97 billion.

Best Buy (BBY) closed up more than +5% after reporting Q3 revenue of $9.67 billion, stronger than the consensus of $9.58 billion, and raising its 2026 revenue forecast to $41.65 billion-$41.95 billion from a previous forecast of $41.1 billion-$41.9 billion, the midpoint above the consensus of $41.77 billion. 

Burlington Stores (BURL) closed down more than -11% after reporting Q3 revenue of $2.71 billion, below the consensus of $2.72 billion. 

J M Smucker (SJM) closed down more than -3% after cutting the top end of its full-year guidance, lowering its 2026 net sales forecast to +3.5% to +4.5% from a previous forecast of +3% to +5%. 

Nvidia (NVDA) closed down more than -2% to lead losers in the Dow Jones Industrials after The Information reported that Meta Platforms is in talks to spend billions on Google’s AI chips, suggesting Google is making headway in efforts to rival Nvidia’s dominance in AI chips. 

Oracle (ORCL) closed down more than 2% after CFRA downgraded the stock to hold from buy and cut its price target to $230 from $350.

Coherent Corp (COHR) closed down more than -2% after Bain Capital cut its stake in the company for the second time this month via a $1.14 billion unregistered block trade. 

Earnings Reports(11/26/2025)

Deere & Co (DE).