U.S. stocks wrapped the first week of December with modest gains, pushing major indexes back to the edge of all‑time highs as investors doubled down on expectations of a Federal Reserve rate cut next week and digested one of the biggest media deals in history.
For the trading week ended Friday, December 5, the S&P 500 rose about 0.3%, the Dow Jones Industrial Averagegained 0.5%, and the Nasdaq Composite climbed 0.9%, according to Associated Press figures. Small caps also joined the party, with the Russell 2000 up 0.8% on the week. [1]
Year-to-date, the S&P 500 is now up roughly 16.8%, the Dow about 12.7%, the Nasdaq more than 22%, and the Russell 2000 around 13%, underscoring how resilient U.S. equities have been despite higher rates, political drama and a prolonged government shutdown earlier in the fall. [2]
Below is a detailed look at what moved markets between December 1 and 5, 2025, and what investors are watching as the Fed heads into one of its most closely watched meetings in years.
1. Headline Numbers: Quiet Gains, Big Picture
Friday’s session was emblematic of the whole week: calm on the surface, important undercurrents underneath.
- On Friday, Dec. 5, the S&P 500 rose 0.2%, the Dow added 0.2%, and the Nasdaq gained 0.3%, leaving all three within about 1–2% of their record closes. [3]
- For the full week, AP data show:
- S&P 500: +21.31 points (+0.3%)
- Dow Jones: +238.57 points (+0.5%)
- Nasdaq Composite: +212.44 points (+0.9%)
- Russell 2000: +21.05 points (+0.8%) [4]
More granular weekly data from independent macro commentary lines up with that picture and highlight a tech and cyclical tilt: the Nasdaq 100 gained about 1%, semiconductor stocks jumped nearly 3.8%, and transports rallied more than 3%, signaling improving risk appetite and optimism about growth. [5]
At the index level, markets notched their second straight week of gains, helped by ongoing hopes that the Fed will soon start easing more decisively, according to Reuters. [6]
2. Macro Drivers: Cooling Inflation, Firm Jobs, and a Divided Fed
A friendly inflation print
The macro spotlight this week was squarely on inflation and labor data, which together reinforced the narrative of a cooling—though not collapsing—economy.
- The Fed’s preferred inflation measure, the Personal Consumption Expenditures (PCE) price index, showed annual headline inflation around 2.9% in September, in line with expectations, while core PCE (excluding food and energy) came in at 2.8%, slightly below forecasts. [7]
- The PCE data, delayed by a 43‑day government shutdown, finally arrived and helped cement expectations of a rate cut at the Fed’s December meeting. [8]
Markets mostly interpreted the inflation numbers as “good enough” for the Fed to act: a continued downtrend in price pressures without obvious signs of recession.
Labor market: softening, not breaking
Labor data painted a nuanced picture:
- Initial jobless claims fell to about 191,000 for the week ended November 29 – the lowest level since September 2022 – suggesting layoffs remain historically low despite high-profile corporate cuts. [9]
- At the same time, reports like Challenger, Gray & Christmas showed total announced job cuts in 2025 at their highest level since 2020, underscoring a slow but steady normalization in the jobs market after the post‑pandemic hiring boom. [10]
For markets, this mix is almost ideal: cooler, but not collapsing.
Fed cut odds near 80–90%—but not everyone agrees
Going into the December 10 Fed meeting, futures markets are pricing in roughly an 80–90% chance of a 25‑basis‑point rate cut, according to CME FedWatch and LSEG data cited by S&P Global and Reuters. [11]
But behind the scenes, the Fed is more divided than at any point in years:
- Five of the 12 voting members of the FOMC have publicly expressed skepticism about further easing, while three members of the Board of Governors have signaled support for another cut. [12]
- Reuters notes that a meeting with three or more dissents would be the most divided Fed since 2019, and investors will watch both the vote count and Chair Jerome Powell’s guidance closely. [13]
Economists at S&P Global expect the Fed to cut this month but see the more important story in the rate path for 2026, projecting a couple more cuts next year, starting around mid‑year, assuming inflation keeps trending lower. [14]
3. Daily Market Moves: From Small‑Cap Records to a Friday Pop
While the weekly moves look tame, the day‑to‑day action told a fuller story of investor mood swings.
Early week: small caps and cyclicals flex
- On Tuesday, the S&P 500 and Nasdaq logged a third straight day of gains, while the Russell 2000 (small caps) hit a record closing high, according to MarketWatch and Russell data. [15]
- The move suggested growing confidence that rate cuts will broaden the rally beyond mega‑cap tech, as smaller and more domestically focused companies tend to benefit disproportionately from lower borrowing costs.
Midweek: big rally on Fed optimism
- Wednesday saw a powerful risk‑on session, with the Dow up more than 400 points and the S&P 500 and Nasdaq also surging as traders leaned into the idea that the Fed would deliver a December cut. [16]
- Financials, transports and semiconductors led gains, confirming what weekly sector breakdowns later showed: investors are increasingly positioning for lower rates and a soft landing rather than a hard recession. [17]
Thursday: mixed market, data‑watching mode
- On Thursday, indexes largely paused near flat, with the Dow fractionally lower and the S&P 500 and Nasdaq up about 0.1–0.2% as traders digested jobless claims and Challenger layoff data ahead of Friday’s inflation report. [18]
Friday: tame inflation + mega‑deal = quiet grind higher
- Friday’s PCE data came in benign, and all three major indexes added about 0.2–0.3%, leaving the S&P 500 just shy of its all‑time closing high from October. [19]
Overall, the week felt like a controlled ascent: no panic buying, but a steady preference for equities over cash as investors looked through short‑term noise toward the Fed’s next move and the 2026 earnings cycle.
4. Corporate Spotlight: Netflix’s $70–80+ Billion Warner Bros Bet Rewrites Streaming
The single biggest corporate story of the week wasn’t about banks or chipmakers—it was about streaming.
The deal
On Friday, Netflix announced a landmark agreement to acquire Warner Bros. Discovery’s TV, film studios and streaming operations, including HBO and HBO Max, in a cash‑and‑stock transaction valued at roughly $72–83 billion, depending on the source and whether debt is included. [20]
Key details based on reporting from Reuters, the Financial Times and Netflix’s own announcement include:
- Netflix will gain control of HBO, HBO Max and Warner Bros. Studios, plus franchises like “Game of Thrones,” the DC universe, “Harry Potter,” “The Sopranos,” “The Big Bang Theory,” “Casablanca” and more. [21]
- The deal values Warner Bros. Discovery stock at around $27–28 per share, with total enterprise value put near $82–83 billion after factoring in debt. [22]
- Netflix is funding the purchase with a mix of short‑term bridge financing (including a ~$59 billion loan led by Wells Fargo) and planned bond issues and term loans to be refinanced over the next two years. [23]
The acquisition is expected to close in late 2026, following Warner Bros. Discovery’s spinoff of its global networks business and subject to intense antitrust scrutiny in both the U.S. and Europe. [24]
Market reaction
Despite the strategic logic, Netflix shares fell nearly 3% on Friday, while Warner Bros. Discovery jumped about 6%and rival bidder Paramount Skydance slumped around 10%, reflecting concerns that Netflix may be overpaying and taking on significant leverage. [25]
Media analysts and regulators quickly warned that the combination of Netflix and HBO Max could sharply reduce competition in premium streaming, trigger job cuts and weaken theaters’ bargaining power, with some critics calling for the deal to be blocked outright. [26]
In the short term, the deal added to volatility in the communication services sector—which nonetheless ended the week as one of the best performers in the S&P 500, alongside consumer discretionary and technology shares. [27]
5. Sector Performance: Growth and Cyclicals Outperform, Defensives Lag
Across the S&P 500’s major sectors, the week mostly favored growth and cyclicals over defensives:
- Reuters reports that communication services, consumer discretionary and technology led the U.S. market’s advance this week. [28]
- Utilities, energy and healthcare were the main laggards, partly reflecting the market’s shift away from bond‑like sectors as risk appetite rose and yields edged higher. [29]
Stock‑specific stories reinforced these trends:
- Ulta Beauty surged nearly 13% on Friday after beating earnings expectations and raising guidance, underscoring the strength of beauty and higher‑end retail spending even as consumers trade down elsewhere. [30]
- Dollar General and Dollar Tree extended their post‑earnings rallies as shoppers across income brackets continue hunting for value, giving discount retailers a cyclical tailwind. [31]
- In big tech, Broadcom, Meta, Alphabet, Microsoft, Amazon and Tesla mostly advanced, while Nvidia and Apple slipped slightly, highlighting ongoing rotation within the “Magnificent Seven” rather than outright abandonment. [32]
- According to macro commentary, banks gained more than 3% on the week, broker‑dealers rose nearly 2%, and semiconductors climbed close to 4%, all classic beneficiaries of expectations for easier monetary policy and sustained growth. [33]
The upshot: investors are still willing to pay up for growth and cyclical exposure as long as the soft‑landing narrative holds and the Fed doesn’t surprise with a hawkish stance next week.
6. Liquidity and Flows: Cash Still King—But Risk Assets Are Catching Up
One quiet but important theme running beneath the surface this week is liquidity:
- Money‑market fund assets surged by about $132 billion in a single week to a record $7.65 trillion, the largest weekly increase since early 2020, according to credit‑market analysis. [34]
- Over the past 17 weeks, money‑market funds have added more than $570 billion, reflecting how attractive cash and short‑term yields remain even as equities rally. [35]
At the same time, U.S. 10‑year Treasury yields ticked higher to roughly 4.14%, and the U.S. dollar index is on track for a second straight weekly loss, both consistent with markets pricing in modest rate cuts and a gentle economic slowdown rather than a sharp downturn. [36]
This blend—high cash balances plus rising risk assets—suggests there is still “dry powder” on the sidelines that could flow into stocks if the Fed delivers a cut and avoids sounding too hawkish.
7. Looking Ahead: Fed Decision, Data Backlog and 2026 Forecasts
Fed meeting: cut likely, guidance critical
Next week’s FOMC meeting (Dec. 10) is the key near‑term catalyst:
- Markets and most economists expect a 25‑basis‑point rate cut, bringing the federal funds range down to 3.50–3.75%. [37]
- However, a highly divided committee, an unusual backlog of economic data (including a delayed November jobs report thanks to the government shutdown) and mixed signals from Powell mean a “no‑cut” surprise remains a non‑zero risk, as some strategists at Nomura and others have warned. [38]
If the Fed does cut, many analysts believe the immediate market reaction could be muted because the move is already largely priced in. What matters more is:
- The “dot plot” for 2026 and beyond
- Powell’s tone around inflation risks, labor‑market slack, and how “data‑dependent” the Fed really intends to be
2026 equity outlook: cautiously optimistic, with valuation caveats
Strategists and research houses have begun rolling out their 2026 and late‑2025 outlooks, and a common theme is moderate upside with elevated uncertainty:
- Morningstar’s December 2025 outlook suggests the U.S. equity market is trading roughly a few percent below their aggregate fair value estimate, with value and small‑cap stocks still screening as more attractively valued than many mega‑cap growth names. [39]
- A Fortune survey of Wall Street forecasts highlighted calls for the S&P 500 to approach or even break 8,000 over the next year or so, with veteran strategist Ed Yardeni reaffirming a target around 7,700 for 2026—implying mid‑single‑digit annualized gains from current levels if earnings cooperate. [40]
At the same time, credit‑market analysts warn that leverage in hedge‑fund and AI‑related trades is near historic highs, and central banks globally are increasingly worried about financial‑stability risks in frothy corners of markets. [41]
In other words, the base case on Wall Street is constructive but not euphoric: a soft landing with moderate earnings growth and lower rates, offset by late‑cycle risks, high positioning in some growth themes and significant political and geopolitical uncertainty.
8. Key Takeaways for Investors (Not Financial Advice)
For investors trying to make sense of the week of Dec. 1–5, 2025, a few big themes stand out:
- The trend is still up, but less explosive. Major U.S. indexes added less than 1% this week, yet sit near record highs with double‑digit year‑to‑date gains—classic late‑cycle grind rather than early‑cycle surge. [42]
- Fed expectations drive everything. Markets are heavily positioned for a December rate cut and a gentle easing path into 2026; any hawkish surprise or messy dissent could spark short‑term volatility. [43]
- Growth and cyclicals remain in favor. Tech, communication services, consumer discretionary, financials, semis and transports are still leading, while defensive sectors like utilities and healthcare lag. [44]
- Mega‑deals can reshape entire sectors overnight. Netflix’s planned takeover of Warner Bros. Discovery consolidates enormous content power under a single streaming giant, with far‑reaching implications for media competition, regulation and long‑term profitability across the entertainment value chain. [45]
- Plenty of cash is still on the sidelines. Record money‑market balances and modest weekly equity inflows suggest that if the Fed sticks the landing, there is room for more capital to rotate into risk assets—though leverage and positioning in some areas, especially AI, remain a concern. [46]
As always, this is a general market overview, not personalized investment advice. Anyone making portfolio decisions should consider their own objectives, risk tolerance, time horizon and, ideally, professional guidance.
References
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