Weekly Investment Perspective

U.S. stocks extended their advance last week, though gains were modest as investors balanced growing confidence in a December rate cut with a mixed run of economic data. The Dow added about 0.5%, the S&P 500 rose roughly 0.3%, the Nasdaq gained just under 1%, and the small-cap Russell 2000 also finished higher. Leadership leaned toward cyclicals, semiconductors, and other AI-linked names, while defensives lagged. At the same time, long-term interest rates moved higher and the dollar softened, underscoring that recent equity strength is being driven less by a clean “goldilocks” backdrop and more by expectations that the Federal Reserve will start easing policy this week.

Beneath the surface, last week’s dataflow continued to highlight an uneven economic backdrop. On the labor front, the November ADP report undershot expectations and showed the weakest private-sector job growth since early 2023, while Challenger’s layoff data remained elevated in sectors like telecom and tech. Yet initial jobless claims fell to their lowest level since September 2022 and continuing claims dropped sharply, reinforcing the idea that labor softening is still uneven and company-specific rather than a broad downturn. Early holiday retail sales reports also indicate consumer spending running ahead of last year, but with a notable pickup in “buy now, pay later” usage. Meanwhile, the ISM Services index ticked up from 52.4 to 52.6 in November, its highest reading in nine months, hinting at ongoing resilience in the larger services side of the economy even as ISM Manufacturing slipped further into contraction with weaker employment and higher input prices.

All of this sets the stage for a closely watched Fed meeting this week. Futures markets now assign a very high probability to a 25-basis-point rate cut, which would mark the formal start of an easing phase following the extended pause at restrictive levels. The bigger question for markets is not this meeting’s decision, but what Chair Powell and his colleagues signal about the path of policy in 2026. Mixed data on growth, inflation, and employment—combined with gaps from shutdown-related delays—make that guidance harder to calibrate. The Fed’s challenge is to acknowledge weakness in rate sensitive industries and pockets of labor cooling without suggesting that a sharp downturn is imminent, while reinforcing its commitment to keep inflation on a sustained path back toward target.

Another evolving backdrop is the growing focus on who will be named as Chair Powell’s eventual successor next spring. Prediction markets and press commentary have increasingly converged on White House economic advisor Kevin Hassett as the leading candidate for the next term. He is generally viewed as a pro-growth economist who could be more inclined to support rate cuts, potentially tilting the committee toward a somewhat easier stance over the next few years. Concerns that growing political pressure could influence the central bank’s policy decisions may be a factor in the recent rise in long-term rates. That said, the Fed remains a consensus-driven institution, and any future chair will still operate within the framework of a dual mandate and data-dependent decision-making.

Looking ahead, this week’s Fed meeting will dominate the agenda. Investors will parse the policy statement, the updated “dot plot,” and Chair Powell’s press conference for clues on how many additional cuts officials believe may be appropriate next year and how they are weighing conflicting signals from manufacturing, services, and the labor market. Alongside the Fed, we will also see JOLTS job-openings data and weekly unemployment claims, which should provide additional context on labor demand. On the corporate side, earnings from Oracle, Adobe, Broadcom, and Synopsys will offer further insight into enterprise technology spending and the durability of the AI investment cycle.

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