By Jamie McGeever
ORLANDO, Florida (Reuters) -Wall Street was mixed on Wednesday after the Federal Reserve lowered interest rates but signaled a cut in December was in the balance, while Nvidia became the world’s first $5 trillion company. Investors now turn their attention to Thursday’s meeting between U.S. President Donald Trump and Chinese President Xi Jinping.
In my column today, I look at the U.S. job market is now moving from a ‘no hire, no fire’ landscape towards ‘no hire, more fire’ territory.
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. Fed lowers rates, nods to limits of data duringshutdown; two policymakers dissent 2. Nvidia storms past $5 trillion valuation as AI boompowers meteoric rise 3. Looming Trump-Xi meeting revives hope of US-China tradetruce 4. Placid bond market almost trolling doomsayers: MikeDolan 5. US government shutdown may prompt first-ever workaroundfor inflation-protected bonds
Today’s Key Market Moves
* STOCKS: New highs on Wall Street but S&P 500 and Dowclose lower. Japan’s Nikkei +2% to new high, Shanghai Compositea new 10-year peak. * SHARES/SECTORS: Microsoft -5%, Meta -8%, Alphabet +8% inafter hours trade. Consumer staples and real estate fall 2.7%and 2%, respectively. * FX: Dollar up strongly, biggest rise in G10 space vsSwissie. Argentine peso +2%, PBOC fixes Chinese yuan atstrongest level in a year. * BONDS: U.S. yields rise sharply, as much as 11 bps atthe short end, bear flattening the curve. * COMMODITIES/METALS: Gold pares gains after Powell’scomments, oil up nearly 1%.
Today’s Talking Points
* The $5 trillion club…
Chipmaker Nvidia is the world’s first $5 trillion company, only three months after it reached the $4 trillion mark. Its market cap is up 12-fold since the launch of ChatGPT in 2022, and is now worth around half of the entire benchmark European Stoxx 600 index. UBS and BofA are among those significantly raising their price targets still.
The firm’s importance to U.S. growth, power and national security is increasingly evident. CEO Jensen Huang unveiled $500 billion in AI chip orders and said he plans to build seven supercomputers for the U.S. government, while President Trump says he will speak to Chinese President Xi Jinping about Nvidia’s state-of-the-art Blackwell AI chip on Thursday.
* …and Wall Street’s historic imbalance
Contrast Nvidia and the ‘Mag 7’ AI megacaps with the wider market. Tuesday was a historic day on the S&P 500 for a very different, but related, reason – even though the index rose, 398 of its constituents fell. Analysts say that’s the worst market breadth for an ‘up’ day since at least 1990, maybe ever.
The latest surge at the top has meant the equal-weight S&P 500 has lagged badly, so much so, it is now underperforming the benchmark market-weight index by the widest margin since May 2003. How long can literally two handfuls of stocks keep lifting such a heavy weight?
* Fed cools on December cut
The Federal Reserve lowered interest rates by 25 basis points on Wednesday, as expected, but Fed Chair Jerome Powell said another cut in December is not a done deal. “Far from it.”
Wall Street pared its gains and rates traders dramatically reduced the probability of a December cut to 65% from 85% before the Fed meeting. It was over 90% earlier this week. The Fed’s next meeting is in six weeks, which is a long time for policymakers, especially in the fog of a government shutdown.
US job market is now ‘no hire, more fire’
The U.S. labor market has been characterized as a ‘no hire, no fire’ landscape for much of the past year. But ‘no hire, more fire’ increasingly looks more accurate, providing further ammunition for the Federal Reserve to cut interest rates.
Retail giant Amazon on Tuesday announced 14,000 layoffs, with more to come next year, while delivery service UPS revealed that it has cut a whopping 48,000 employees over the past year. The reasons cited include protecting margins, employing more artificial intelligence, and reversing pandemic-era over-hiring.
These aren’t the only eye-opening announcements recently: around 25,000 workers are being let go at Intel, 15,000 at Microsoft, and 11,000 at Accenture. The Trump administration is also firing swathes of government workers.
In total, U.S. employers announced almost 950,000 job cuts in the January-September period, according to global placement firm Challenger, Gray & Christmas, with the top affected sectors being government, tech and retail.
While most of that was earlier in the year, these figures suggest the labor market is truly cracking, lending credence to Fed Chair Jerome Powell’s view that downside risks to employment outweigh upside risks to inflation.
FLYING BLIND
The Fed resumed its interest rate-cutting cycle in September after a nine-month hiatus and is expected to continue easing into next year due to concerns about labor market weakness.
While the unemployment rate hasn’t risen much, that is mainly because cooling demand for workers has been offset by shrinking labor supply, as the Trump administration has cracked down on immigration and increased deportations.
In normal times, job cuts at individual firms might not be on policymakers’ radar. But these are not normal times. We’re in the midst of the second-longest government shutdown in U.S. history. This has prevented the release of almost all labor market data – including monthly payrolls, the unemployment rate, job openings and labor turnover survey (JOLTS) and weekly jobless claims – for four weeks. Fed officials are flying blind.
With no official incoming data for guidance, specific corporate announcements could take on extra significance.
Troy Ludtka, senior U.S. economist at SMBC Nikko Securities Americas, says the Amazon and UPS announcements may not move the policy dial just yet, but they should confirm Fed officials’ “anxieties” over the labor market. “The question now is, just how aggressive will other companies be in reducing headcount?”
WARNING BELLS
As the Fed waits for the answer to that question, the few official economic indicators available are already ringing warning bells.
The Chicago Fed’s economic model – which uses private data when official government statistics are unavailable – showed that ‘Layoffs and Other Separations’ as a share of employed workers are grinding higher and that the ‘Hiring for Unemployed Workers’ as a share of total unemployed is falling. Both of these are levels not seen for four years.
Meanwhile, U.S. private payrolls increased by an average of just 14,250 jobs in the four weeks ending October 11, the ADP National Employment Report’s weekly preliminary estimate showed on Tuesday. ADP, which usually publishes monthly reports, said it will now publish weekly preliminary estimates every Tuesday, based on its high-frequency data.
That’s a paltry increase, effectively signaling no job growth at all – although it is better than the 32,000 decline in ADP’s last monthly report for September.
All told, the labor market picture appears to justify lower interest rates. But easier policy is not without risks. Wall Street, led by tech and AI stocks, is booming, with financial conditions the loosest in years. And inflation is still a full percentage point above the Fed’s target.
Rate cuts may be well-intentioned, with the goal of protecting potentially millions of workers at risk of losing their jobs, but easing will pour fuel on the ongoing ‘melt up’ rally. So while it remains unclear how much these cuts will actually support the labor market, they are almost certain to boost wealthy asset holders’ portfolios.
What we also know for sure is that the more companies announce sweeping layoffs, the more likely the Fed is to act.
What could move markets tomorrow?
* Trump-Xi meeting in South Korea * Germany inflation (October, prelim) * Euro zone GDP (Q3, prelim) * European Central Bank interest rate decision * U.S. earnings, including Apple, Amazon, Eli Lily,Mastercard, Comcast, Starbucks
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(By Jamie McGeever;)
