U.S. Markets Rise on Fed Rate Cut Optimism

U.S. stock indexes finished Wednesday higher, overcoming early losses and closing at multi-week highs. Investors quickly shifted from concerns about weak labor data to optimism stemming from stronger services-sector activity and rising confidence that the Federal Reserve will cut rates at its upcoming meeting. The 10-year Treasury yield fell to 4.06%, reinforcing the bid for equities.

The ADP report showed an unexpected decline of 32,000 jobs — the steepest drop in more than two and a half years. While this signaled further economic cooling, it also strengthened expectations of easier Fed policy. The probability of a rate cut at the December 9–10 FOMC meeting surged to 95%, essentially fully priced into the market.

A key counterbalance came from the ISM Services report, which unexpectedly rose to 52.6, the highest level in nine months. Business activity in the services sector accelerated, while price pressures eased. These results helped stocks recover earlier losses and push major indexes higher by the close.

Semiconductors were the strongest segment of the day. Microchip Technology’s upbeat profit forecast sent its shares up more than 12%. The rally spread across the sector, lifting Marvell, ON Semiconductor, NXP, Texas Instruments, and others. This momentum helped the S&P 500 and Nasdaq reach three-week highs.

Microsoft became a notable drag after reports of lowered AI-software sales quotas pushed the stock down more than 2%. Meanwhile, crypto-exposed names rallied as Bitcoin climbed to a two-week high, boosting Coinbase, Galaxy Digital, and several mining stocks.

Lower mortgage rates and growing confidence in a Fed rate cut supported homebuilders. DR Horton and other leading companies rose on expectations of improved housing demand. Despite a decline in total mortgage applications, rate dynamics remain the dominant driver for the sector.

Attention now shifts to labor market indicators and consumer-focused data coming later this week. Reports on personal income, spending, and the Fed’s preferred inflation gauge — Core PCE — will shape expectations heading into the FOMC meeting. Markets will look for signs confirming cooling inflation and moderating economic growth.

Bond yields fell across Europe as well, while stock indexes closed mixed. The Euro Stoxx 50 climbed to a 2.5-week high, whereas China and the U.S. moved in opposite directions due to differing domestic and corporate factors.