Stocks Rally as Soft Labor Data Fuels Fed-Cut Bets

U.S. stocks advanced Wednesday, with investors leaning into easing-cycle expectations after another soft batch of labor and price data sharpened the case for a Federal Reserve rate cut next week. At the close, the Dow Jones Industrial Average climbed 408.37 points, or 0.86%, to 47,882.8, while the S&P 500 added 20.61 points, or 0.30%, to 6,849.98. The Nasdaq Composite rose 0.17% to 23,454.1, and small-caps outperformed, with the Russell 2000 up 1.82% to 249.62. Volatility ebbed, pushing the VIX down 3.43% to 16.02.

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The session’s tone was shaped early by the sharpest deterioration in private-sector hiring since 2023. ADP reported 32,000 job losses in November, including 120,000 cuts at small businesses, the worst drawdown among Main Street employers since March 2023. The release arrives as the final labor datapoint before the Fed’s December 9–10 policy meeting, with the official BLS nonfarm payrolls delayed until Dec. 16 due to a government shutdown adjustment.

Nela Richardson of ADP emphasized the breadth of the weakness, noting that “November’s slowdown was broad-based, led by a pullback among small businesses,” and citing an “uncertain macroeconomic environment.” Markets interpreted that combination of soft employment and fading inflation as reinforcing the Fed’s analytical—and political—cover for another 25-basis-point cut.

Additional data reinforced the shift. The ISM Services PMI registered 52.6, modestly expansionary, but its employment component remained in contraction at 48.9, according to the Institute for Supply Management. Prices-paid fell to 65.4, a seven-month low, while import and export prices were flat and petroleum import costs declined 1.5%. Wage growth for job-stayers eased to 4.4%, per ADP’s pay data. Measures of industrial production and capacity utilization continued to reflect subdued activity and limited pricing power.

The layering of softer labor, disinflation signals, and stagnant output stoked expectations that the Fed can cut without appearing premature. Futures markets are now pricing nearly a 90% probability of a December cut, with investors awaiting whether Chair Jerome Powell tempers his communication stance after months of caution. Reports suggesting President Trump may be reconsidering his expected pick for Fed Chair, Kevin Hassett. While speculative, such shifts in perceived leadership trajectories can influence how traders handicap the medium-term policy bias.

Risk assets responded broadly. Small-caps—typically sensitive to financial-conditions easing—extended their rebound. Bitcoin climbed 2.45% to $93,189.13, crude oil rose 0.65% to $59.02, and gold settled 0.47% higher at $4,240.60. The easing in volatility and the bid for cyclicals underscored expectations that the Fed may deliver not only a cut but potentially a softer policy message than previously anticipated.

Regulatory developments also drew attention as the Securities and Exchange Commission intensified scrutiny of ultra-leveraged exchange-traded products. The SEC has paused reviews of new 3x and 5x leveraged ETF filings and issued warning letters to nine issuers—including Direxion, ProShares, GraniteShares, and Tidal—questioning whether their products comply with Rule 18f-4, which caps a fund’s value-at-risk at 200% of its reference portfolio. The action effectively places super-charged products in a holding pattern and redirects market interest toward existing 2x vehicles, even as popular funds such as ProShares UltraPro QQQ continue to attract significant assets. The pause marks a shift toward tighter risk oversight following a period of permissive approvals, particularly across crypto-linked and derivatives-heavy ETFs.

With the next Fed meeting now just a week away, investors are positioning around the growing likelihood that policymakers will deliver a rate cut and soften their guidance. Markets enter the final stretch of the year with easing hopes ascendant, but the durability of Wednesday’s rally will hinge on whether the data continue to justify a dovish turn.