The S&P 500 Index ($SPX) (SPY) on Thursday closed down -1.12%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.84%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.91%.  December E-mini S&P futures (ESZ25) fell -1.07%, and December E-mini Nasdaq futures (NQZ25) fell -1.86%.

US stock indexes retreated on Thursday, with the S&P 500, the Dow Jones Industrials, and the Nasdaq 100 falling to 2-week lows.  Strong evidence of a cooling US labor market sparked risk-off sentiment and undercut stocks after Thursday's report from outplacement firm Challenger, Gray & Christmas showed that US companies announced the most job cuts in any October in more than 20 years.  Also, weakness in semiconductor stocks on Thursday weighed on the broader market. 

However, a decline in bond yields on Thursday limited the downside in stocks.  The 10-year T-note yield fell -7 bp to 4.09% in hopes the Fed will continue to cut interest rates after Thursday's weak labor report from Challenger.  Also, strong corporate earnings results are supportive of stocks, with 81% of S&P 500 companies reporting Q3 earnings beating expectations. 

US Oct Challenger job cuts surged +175.3% y/y to 153,074, the largest increase in 7 months and the most for an October in 22 years. Year-to-date job cuts have exceeded 1 million, the most since the pandemic, and US employers have announced the fewest hiring plans since 2011.

Hawkish Fed comments on Thursday were negative for stocks.  Chicago Fed President Austan Goolsbee said that a lack of inflation data during the government shutdown makes him more uneasy about the Fed's ongoing interest rate cuts.  Also, Cleveland Fed President Beth Hammack said, "I remain concerned about high inflation and believe monetary policy should be leaning against it. This argues for a mildly restrictive stance for our policy rate to ensure that inflation returns to 2% in a timely fashion."

The markets are discounting a 69% chance of another -25 bp rate cut at the next FOMC meeting on December 9-10.

The US Supreme Court appeared skeptical on Wednesday about whether President Trump's reciprocal tariffs are legal.  Chief Justice Roberts and Justices Gorsuch and Coney questioned President Trump's use of an emergency-powers law to collect tariffs, with Roberts saying the tariffs were an "imposition of taxes on Americans, and that has always been the core power of Congress." The Supreme Court is expected to issue its ruling by late this year or early in 2026.  Lower courts have already ruled that Mr. Trump's reciprocal tariffs are illegal, finding they are based on a specious claim of emergency authority under the 1977 International Emergency Economic Powers Act.  If the US Supreme Court upholds those rulings and strikes down the tariffs, then the US government may have to refund the reciprocal and fentanyl-linked tariffs already collected, totaling more than $80 billion, and Mr. Trump's power to impose tariffs may be limited to well-founded sections of US trade law, such as sections 232, 301, and 201.

Q3 corporate earnings season continues at a strong clip this week, with 136 of the S&P 500 companies reporting earnings this week.  According to Bloomberg Intelligence, 81% of the S&P 500 companies that have reported so far have beaten forecasts, on course for the best quarter since 2021.  However, Q3 profits are expected to have risen by +7.2% y/y, the smallest increase in two years.  Also, Q3 sales growth is projected to slow to +5.9% y/y from +6.4% in Q2.

The US government shutdown, now in its sixth week, is the longest in history, weighing on market sentiment and the US economy.  The government shutdown is delaying a host of government reports and is having an adverse effect on the US economy. 

Overseas stock markets settled mixed on Thursday.  The Euro Stoxx 50 closed down -1.02%.  China's Shanghai Composite closed up +0.97%.  Japan's Nikkei Stock 225 fell closed up +1.34%.

Interest Rates

December 10-year T-notes (ZNZ5) on Thursday closed up by +16 ticks.  The 10-year T-note yield fell -6.8 bp to 4.091%.  Dec T-notes rallied on Thursday after weak labor news from Challenger showed that US employers cut the most jobs in October in the last 22 years, bolstering optimism that the Fed will be able to continue cutting interest rates.  T-notes added to their gains after inflation expectations declined when the 10-year breakeven inflation rate fell to a 1-week low of 2.283% on Thursday.

T-note prices also have underlying support from the ongoing US government shutdown, which is now the longest in history and could lead to additional job losses, reduced consumer spending, and a weakened US economy, potentially allowing the Fed to continue cutting interest rates. 

European government bond yields moved lower on Thursday.  The 10-year German bund yield fell -2.3 bp to 2.650%. The 10-year UK gilt yield fell -2.9 bp to 4.433%.

Eurozone Sep retail sales unexpectedly fell -0.1% m/m, versus expectations of a +0.2% m/m increase.

German Sep industrial production rose +1.3% m/m, weaker than expectations of +3.0% m/m.

ECB Vice President Guindos said, "The European economy is showing a little bit of resilience, and growth is better than many projected only a couple of quarters ago."  He also said that the news on inflation is positive, with gains in service prices "behaving" much better.

As expected, the BOE kept its official bank rate unchanged at 4.00%. BOE Governor Bailey said, "We still think rates are on a gradual path downwards, but we need to be sure that inflation is on track to return to our 2% target before we cut them again."

Swaps are discounting a 4% chance for a -25 bp rate cut by the ECB at its next policy meeting on December 18.

US Stock Movers

Weakness in semiconductor stocks on Thursday was negative for the overall market.  Advanced Micro Devices (AMD) closed down more than -7%. Also, Nvidia (NVDA), Qualcomm (QCOM), Applied Materials (AMAT), and GlobalFoundries (GFS) closed down more than -3%.  In addition, Intel (INTC), Microchip Technology (MCHP), and ON Semiconductor (ON) closed down more than -2%.  Finally, NXP Semiconductors NV (NXPI), Lam Research (LRCX), and KLA Corp (KLAC) closed down more than -1%. 

Elf Beauty (ELF) closed down more than -34% after forecasting 2026 adjusted EPS of $2.80 to $2.85, well below the consensus of $3.53. 

Duolingo (DUOL) closed down more than -26% after forecasting Q4 bookings of $329.5 million to $335.5 million, well below the consensus of $344.1 million. 

CarMax (KMX) closed down more than -25% after reporting Q3 preliminary EPS of 18 cents to 26 cents, well below the consensus of 69 cents, and terminating CEO Nash, effective December 1. 

DoorDash (DASH) closed down more than -17% to lead losers in the S&P 500 and Nasdaq 100 after forecasting Q4 adjusted Ebitda of $710 million to $810 million, the midpoint weaker than the consensus of $802.7 million. 

Paycom Software (PAYC) closed down more than -11% after reporting Q3 adjusted EPS of $1.94, below the consensus of $1.96.

Robinhood Markets (HOOD) closed down more than -10% after raising its full-year adjusted operating expenses and share-based compensation forecast to $2.28 billion from a previous forecast of $2,15 billion to $2.25 billion. 

Fortinet (FTNT) closed down more than -6% after forecasting full-year service revenue of $4.58 billion to $4.60 billion, weaker than the consensus of $4.61 billion.

Datadog (DDOG) closed up more than +23% to lead gainers in the S&P 500 and Nasdaq 100 after raising its full-year adjusted EPS forecast to $2.00-$2.02 from a previous estimate of $1.80-$1.83, above the consensus of $1.84.

Coherent (COHR) closed up more than +18% after reporting Q1 revenue of $1.58 billion, stronger than the consensus of $1.54 billion, and forecasting Q2 revenue of $156 billion to $1.70 billion, the midpoint above the consensus of $1.56 billion. 

Air Products and Chemicals (APD) closed up more than +8% after forecasting 2026 adjusted EPS of $12.85 to $13.15, the midpoint above the consensus of $12.89. 

Parker-Hannifin (PH) closed up more than +7% after reporting Q1 net sales of $5.10 billion, stronger than the consensus of $4.94 billion. 

STERIS Plc (STE) closed up more than +6% after raising its 2026 adjusted EPS from continuing operations forecast to $10.15 to $10.30 from a previous forecast of $9.90 to $10.15. 

Lyft Inc (LYFT) closed up more than +5% after reporting Q3 gross bookings of $4.78 billion, above the consensus of $4.76 billion, and forecasting Q4 gross bookings of $5.01 billion-$5.13 billion, better than the consensus of $5.01 billion. 

Cummins (CMI) closed up more than +5% after reporting Q3 net sales of $8.32 billion, stronger than the consensus of $8.00 billion.

Rockwell Automation (ROK) closed up more than +2% after reporting Q4 sales of $2.32 billion, stronger than the consensus of $2.20 billion. 

Earnings Reports(11/7/2025)

Constellation Energy Corp (CEG), Duke Energy Corp (DUK), Franklin Resources Inc (BEN), KKR & Co Inc (KKR).

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