The US stock market spent Thursday hovering just below all‑time highs, as investors weighed fresh labor-market data, rising Treasury yields and growing confidence that the Federal Reserve will cut interest rates again next week.
By late afternoon in New York, the S&P 500 was essentially flat around 6,850, the Dow Jones Industrial Average dipped only a few hundredths of a percent, and the Nasdaq Composite edged slightly higher, according to LSEG data published by Reuters. [1] Small‑cap shares once again outperformed, with the Russell 2000 gaining around 0.7–1% and trading within striking distance of fresh record highs. [2]
At the same time, the 10‑year US Treasury yield pushed back above 4.1%, reflecting hotter‑than‑expected weekly jobless claims data and some unwinding of Wednesday’s bond rally. [3]
Key takeaways from today’s US stock market session
- Major indices:
- Leadership shift: Large‑cap benchmarks stalled, but small caps in the Russell 2000 continued to rally, helped by expectations of easier policy and a still‑solid domestic economy. [7]
- Macro backdrop:
- Big movers:
- Cross‑asset moves:
Wall Street treads water just below records
Today’s session had the feel of a market catching its breath rather than reversing trend.
A Reuters market wrap noted that the Dow slipped about 0.06%, the S&P 500 rose just 0.01%, and the Nasdaq added roughly 0.05%, underscoring how tightly range‑bound trading was despite a steady drip of news. [14] Data from LSEG’s US market dashboard similarly showed all three major benchmarks down 0.2% or less at one point, with the S&P 500 off only 0.1% intraday. [15]
The broader context:
- The S&P 500 has gained in seven of the last eight sessions, closing at 6,850 on Wednesday as breadth improved and more than 350 components finished higher, according to a morning note from broker XTB. [16]
- A Bloomberg/Reuters markets wrap described the index as “little changed” today but still “within striking distance” of record territory, with bulls largely maintaining control despite some hesitancy near prior highs. [17]
In other words, large‑cap US stocks are pausing rather than pulling back, with bulls and bears both reluctant to make big bets ahead of next week’s crucial Fed decision.
Fed rate‑cut expectations dominate the narrative
Labor data: jobless claims vs. layoff announcements
With the government’s October and November jobs reports delayed by the record‑long US government shutdown, traders have been forced to lean heavily on secondary indicators. [18]
Key developments:
- Initial jobless claims sank to 191,000 last week, the lowest in roughly 38 months, well below economists’ expectations around 220,000. [19]
- Continuing claims also fell sharply, and four‑week moving averages dropped for both series, suggesting layoff activity has cooled even as headlines discuss job cuts in certain sectors. [20]
- Challenger, Gray & Christmas reported that announced layoffs for November fell from October’s spike, though they remain elevated versus the past few years. [21]
At the same time, private‑sector data point in the opposite direction:
- The ADP private payrolls report showed a surprise decline, and research cited by several analysts argues that job losses in 2H 2025 have been more persistent than headline claims suggest. [22]
A Chicago Fed model pegs the unemployment rate at around 4.4% in November, reinforcing the idea of a labor market that’s cooling but far from collapsing. [23]
How that feeds into Fed expectations
The result is a kind of “good news is good enough” dynamic for markets:
- Futures now imply around an 87–90% probability that the Fed will cut rates by 25 bps at next week’s meeting, up from roughly 60–70% odds a month ago, according to the CME FedWatch tool cited by Reuters and The Economic Times. [24]
- Fed officials will not have fresh nonfarm payrolls in hand at the meeting because of the shutdown, but they will see the delayed September core PCE inflation report on Friday, which economists expect to show inflation still just under 3% year on year. [25]
Strategists quoted by Reuters and Bloomberg broadly agree that:
- The Fed has enough evidence of slowing but not collapsing growth to justify another cut. [26]
- The bigger debate is how quickly policy might ease in 2026, and whether that easing will be driven by gently cooling inflation or by a sharper downturn in jobs and spending. [27]
Sector and stock highlights: tech underperforms, defensives and discounters pop
Today’s market action showed a classic late‑cycle rotation pattern: leadership is broadening out beyond the mega‑cap tech names that drove much of 2023–2024.
Tech: mixed signals amid AI fatigue
- Salesforce shares climbed roughly 3–4% after the company raised its fiscal 2026 revenue and earnings guidance, crediting strong demand for AI‑enabled tools on its platform. [28]
- Meta Platforms gained around 4% as reports suggested it plans to cut up to 30% from its metaverse budget, a move investors interpret as a shift toward higher‑return AI and advertising projects. [29]
- Snowflake, by contrast, dropped roughly 9–11% after issuing a product‑revenue forecast that, while positive, fell short of lofty AI‑driven growth expectations. [30]
An analysis from Interactive Brokers noted that “waning AI sentiment” has left some high‑multiple tech shares lagging, as investors digest reports of slower‑than-hoped uptake for certain AI software offerings. [31]
Consumer and retail: value shoppers drive winners
- Dollar General surged after reporting a stronger‑than‑expected profit and raising its full‑year outlook, as cash‑strapped consumers continued to trade down. Different intraday snapshots show gains ranging from 1–2% to double‑digits as the stock broke out technically. [32]
- Hormel Foods advanced nearly 4% after forecasting annual earnings above Wall Street estimates, adding to evidence that select staples can still find growth at the right price points. [33]
- Kroger shares fell around 4% after the grocer narrowed its full‑year sales forecast and warned of intense competition in food retail, hitting the broader consumer‑staples sector. [34]
Market breadth remains healthy
Even with the indices flat, advancers outnumbered decliners:
- On the NYSE, winners led losers by roughly 1.2 to 1; on the Nasdaq, the ratio was about 1.5 to 1, according to Reuters. [35]
- The S&P 500 recorded close to 30 new 52‑week highs versus only a handful of new lows, while the Nasdaq saw nearly 100 new highs. [36]
That pattern fits the narrative of a broadening, late‑stage bull market rather than a narrow advance driven by a handful of AI giants.
Small caps and the “broadening” trade
One of the clearest themes today was the strength in smaller, more cyclical companies:
- IBKR’s midday note highlighted that the Russell 2000 was up around 0.7% and “the only major domestic benchmark sporting a meaningful gain”, benefitting from expectations of looser financial conditions and a still‑solid economy. [37]
- A separate Reuters and Straits Times recap of Wednesday’s action showed the Russell 2000 gaining nearly 2% in that earlier session, on top of a 5.5% weekly surge — its strongest in more than a year. [38]
Strategists argue that rate‑sensitive small caps stand to gain disproportionately if:
- The Fed delivers multiple cuts in 2026, and
- The economy slows but avoids a deep recession.
Bank of America’s equity team, for example, has suggested that small‑cap earnings could drive outperformance into 2026 if capex and domestic demand remain firm. [39]
For now, the message from the tape is that investors are increasingly comfortable moving beyond the mega‑cap leaders of the last cycle and re‑rating a wider slice of the market.
Strategists’ outlook: 2026 still looks constructive, but leadership may change
Beyond today’s tick‑by‑tick moves, several major houses published medium‑term outlooks on December 4 that help frame the bigger picture.
UBS: “Rally into 2026” with growth beyond tech
In a new note titled “US tech sector is likely to remain a key driver for the market’s next leg up,” UBS Global Wealth Management reaffirmed a positive view on US equities into 2026, but urged investors not to stay over‑concentrated in mega‑cap tech. [40]
Their key points:
- The AI boom still has fundamental support, with real demand and improving monetization in software and cloud. Salesforce’s upbeat guidance was singled out as an example. [41]
- However, recent underperformance in some tech names highlights attractive opportunities in other sectors, particularly:
- Health care, especially companies tied to obesity drugs, oncology and advanced medical devices.
- Utilities, expected to benefit from rising investment in power grids and surging electricity demand tied to AI and electrification.
- Banks, where return on equity has improved and valuations remain reasonable. [42]
UBS’s base case assumes two additional Fed cuts by the end of Q1 2026, supporting both equities and “quality” bonds. [43]
Interactive Brokers: small caps love “contained expansion + lighter yields”
IBKR economist Jose Torres framed today’s environment as one where “stocks are stalling less than 1% from all‑time highs” while small caps and cyclicals benefit from the combination of lower expected policy rates and a still‑resilient economy. [44]
His takeaway:
- If inflation and wages continue to cool gradually and the Fed delivers three or more cuts next year, small caps could see further upside as financing costs fall.
- If, instead, rapid easing is forced by a sharp rise in unemployment or a collapse in consumption, the small‑cap rally could fizzle quickly. [45]
In short, the soft‑landing vs. hard‑landing debate remains central to how investors position among size and style segments.
The Santa Claus rally playbook for 2025–26
Seasonality is also front of mind after a fresh MarketPulse/OANDA study on the so‑called Santa Claus Rally (SCR)was published today. [46]
Key statistics from that research:
- The SCR refers specifically to the last five trading days of December plus the first two of January — a 7‑session window with a strikingly strong upward bias in US stocks. [47]
- Since 1950, the S&P 500 has produced an average gain of about 1.3% in this period, with positive returns in roughly 79% of years. [48]
- When “Santa shows up” (stocks rise during that window), the following year’s average return has historically been around 10%; when the period is negative, next‑year gains average closer to 4%. [49]
Importantly for 2025:
- The S&P 500 is down slightly so far in December, despite today’s consolidation near highs.
- The MarketPulse analysis notes that if the index were to match the average 2.1% December gain historically seen in similar election‑cycle years, that would likely push the S&P 500 to fresh all‑time highs above 6,929 and toward 7,000. [50]
The study also echoes what traders are already doing in practice: focusing on small caps and other high‑beta assetsduring the Santa window, on the view that they tend to respond most strongly to year‑end liquidity and optimism. [51]
What investors are watching next
With today’s data digested and the indices still hovering near records, attention now turns to a critical 72‑hour stretchfor markets:
- Friday, December 5 – Core PCE inflation (September, delayed)
- This is the Fed’s preferred inflation gauge and has been delayed by the shutdown. Economists expect another month of ~0.2% core price gains, keeping year‑over‑year readings just under 3%. [52]
- A softer‑than‑expected print could cement expectations of a dovish tone next week. A surprise upside risk could rekindle worries that the Fed will stay hawkish into 2026.
- University of Michigan consumer sentiment and inflation expectations
- IBKR points out that inflation expectations within the UMich survey will be closely watched for signs that households see price pressures fading or re‑accelerating. [53]
- Next week’s Fed decision and dot plot
- Markets are heavily skewed toward a third 25‑bp cut this year, but the updated 2026 rate projections and Chair Powell’s tone on the labor market could be just as important for equities as the move itself. [54]
- Ongoing earnings and guidance
- AI‑linked names (like Snowflake), discount retailers (Dollar General, Five Below) and select defensives (Hormel, big pharma, regulated utilities) will remain in focus as investors test the durability of 2026 earnings forecasts. [55]
Bottom line
- US stocks ended December 4, 2025 in a holding pattern, with the S&P 500 hovering just under record highs and the Dow and Nasdaq barely changed. [56]
- Under the surface, leadership is shifting: small caps, value‑oriented cyclicals and select defensives are outperforming, while parts of mega‑cap tech pause amid questions about AI monetization. [57]
- Markets are highly confident in a Fed rate cut next week and broadly constructive on 2026, but the path of inflation, jobs and corporate earnings will determine whether today’s sideways action becomes a launching pad for a Santa Claus rally — or a sign that the market is finally running out of steam. [58]
As always, this overview is for informational purposes only and not investment advice. Investors considering trades around Fed decisions or seasonal patterns should carefully assess their risk tolerance, time horizon and diversification before acting.
References
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