Nasdaq Surges 2.7% on Mounting Fed Rate Cut Hopes Amid Labor Market Concerns

According to Rueters The tech-laden Nasdaq Composite Index posted its sharpest daily gain in over six months, soaring 2.69% to close at 22,872.01, propelled by heightened investor expectations for a Federal Reserve interest rate reduction at its December policy meeting.

The rally, which marked the index's best two-day advance since November 2024, was fueled by fresh economic data underscoring a cooling U.S. labor market and supportive remarks from Federal Reserve officials. Belated government reports released after a six-week federal shutdown revealed signs of employment weakness, including rising state unemployment claims and increasing layoff announcements, which analysts interpret as justification for the central bank's anticipated third rate cut of the year.

San Francisco Fed President Mary Daly, in an interview with The Wall Street Journal published Monday, explicitly endorsed a quarter-point cut at the December 10-11 meeting, citing a "deterioration in the job market." Her comments echoed those from Fed Governor Christopher Waller earlier in the week, who described the labor market as "near stall speed" with no immediate inflationary pressures outside temporary tariff effects. Inflation, excluding those impacts, stands roughly half a percentage point above the Fed's 2% target and is projected to decline further, according to Waller.

These dovish signals shifted market odds dramatically: Futures tied to the CME FedWatch Tool now price in an 85% probability of a December cut, up from 60% at the start of last week. The broader market joined the optimism, with the S&P 500 climbing 1.55% to 6,705.12 and the Dow Jones Industrial Average edging up 0.44% to 46,448.27. Technology giants, including the "Magnificent Seven" AI-linked stocks, led the charge, as lower borrowing costs would further bolster investments in high-growth sectors like semiconductors and cloud computing.

The positive sentiment rippled globally, with Asian markets rallying Tuesday on the heels of Wall Street's performance. Investors shrugged off recent concerns about overvaluation in AI equities, focusing instead on the Fed's pivot toward supporting employment amid sluggish Q3 GDP growth. Third-quarter S&P 500 earnings are tracking a robust 14.7% year-over-year increase, per LSEG data, providing additional tailwinds despite holiday-season consumer spending uncertainties.

U.S. Treasury yields reflected the rate-cut bets, with the 10-year note holding steady at 4.0344% in Asian trading hours and the two-year yield dipping to 3.4872%. Bond markets anticipate the fed funds rate could approach 3% by late 2026 if cuts continue.

Federal Reserve Chair Jerome Powell has not commented directly on the latest data, but the central bank's recent actions - including two prior cuts in 2025 - signal a cautious easing path. Critics, including several regional Fed presidents like Cleveland's Beth Hammack, argue against further reductions, warning of potential financial stability risks from overly loose policy.

Neither the Federal Reserve nor major exchanges responded to requests for additional commentary. As the holiday-shortened trading week unfolds, all eyes remain on upcoming jobs reports and consumer data, which could solidify or derail the rate-cut trajectory ahead of the December decision.