The S&P 500 finished little changed for the week as a whole, but it was mega-cap tech that returned to provide the leadership. Lower volatility heading into an historically investor-positive holiday period combined with a lower-than-expected inflation reading brought the bulls back out. However, more troubling data from the labor market and further signs of consumer weakness highlight why this is turning into such a complex macroeconomic environment to assess.
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Market Moves
Weekly Market Snapshot:
- S&P 500: +0.1% – tech gains again overshadowed what turned out to be a very mixed to disappointing week in other areas of the equity market.
- Nasdaq 100: +0.6% – the magnificent 7 returned to leadership, but other large-cap tech names, including Oracle and Micron, contributed.
- Russell 2000: -0.9% – small-caps took a breather last week after steadily outperforming the S&P 500 for the past month.
- VIX: 14.9 – markets remain quite calm overall and it should stay that way as we head into one of the lowest volatility periods of the year.
- Gold: +1.0% – gold begins to retest all-time highs and looks to strongly finish out one of its best calendar years ever.
- 10-Year Treasury Yield: 4.15% – yields drifted marginally lower as inflation dipped, but the lack of a sharper move reflects the uncertainty around the data.
Drivers:
The markets mostly continue to focus on the good and wait to see about the warning signs.
Lower inflation helped the markets rally at the end of the week on the belief that the Fed may now have more room to lower rates in 2026. The weak labor market data and mixed results from retail are confirming that the macroeconomic backdrop, however, is deteriorating.
At this point, they’re still just warning signs and not signals that an economic contraction is near. But the fact that we’re six months in on some of these signals shouldn’t be ignored.
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Economic Highlights
A couple of the notable themes that stood out this week:
Non-Farm Payrolls Signal More Labor Market Trouble
The markets are finally getting caught up on shutdown-delayed economic reports, but the news on the labor market front wasn’t positive. November’s non-farm payroll gain of 64,000 jobs in November (beating expectations for a 50,000 job gain) was overshadowed by a loss of 105,000 jobs in October.1 That brings the total job gain over the past six months to just 100,000 jobs.
We’re not seeing consistent outright contraction in the jobs market yet, but it feels safe to say that we’ve reached the point of stagnation. Last week, we noted that the job quits rate has plunged, a sign that workers are no longer looking for opportunities elsewhere and feel more comfortable hanging on to existing job security. While this isn’t an imminent recession signal, it does tend to be a reliable leading indicator of an economic slowdown.
Inflation Rate Dips, But Did It Really?
The November CPI report, which showed that the annualized inflation rate came in at 2.7%, raised more questions than provided answers.2
The fact that there was limited data collection in November following no data collection in October cast some doubt on the accuracy of the data. This report’s conclusion doesn’t really line up with the pricing data we’re seeing elsewhere and that the final reading was so far off from expectations of a 3.1% rate, it might be better to wait for the December report to get a better handle on the current inflation situation.
New York Fed president John Williams even cited “technical factors” that likely distorted the November report.3 Translation: U.S. inflation probably fell slightly in November, which is a good thing, but it’s tough to gauge where inflation is really at right now.
Consumers Are Still Struggling
There’s more reason for concern with consumer behavior. The October retail sales figure was flat month-over-month after rising just 0.1% in September.4 We keep hearing stories about consumer spending strength running out of gas and it’s finally showing up in the numbers.
On top of that, Nike stock plunged more than 11% on a weak Q3 outlook.5 The primary culprits were slower sales in China and the negative impact of tariffs. The latter part, in particular, isn’t going away anytime soon and is one of the factors affecting consumer affordability. Big retailers, such as Walmart, are benefiting from consumers looking for cheaper prices, but a lot of the retail sector is struggling like Nike is.
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Busy Central Bank Week; Bank of Japan Finally Hikes
The Fed cut interest rates last week. This past week was an opportunity for global central banks to set their own policy rates.
The Bank of England cut rates in a split decision. The European Central Bank held steady as expected. The Bank of Japan hiked rates to their highest level in 30 years. All told, this tells us two things. First, most of the world is at the end of their rate cutting cycles and taking a “wait and see” approach for now. Second, some countries like Japan are still dealing with above target inflation, which means rate hikes from some areas of the world still aren’t out of the question.
The Week Ahead
A few themes to watch next week:
In Summary
This coming week is likely to be relatively calm and positive. The economic calendar is mostly clear and many traders will probably be on the sidelines. The remainder of 2025 could deliver a good finish to the year, but the start of 2026 might bring a reset that investors should be cautious of.
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