Why Does Everyone Expect Interest Rate Cuts in This Economy?

• Financial markets widely expect Fed officials to boost the economy with a rate cut in December, despite indications that inflation has stayed stubborn, and the job market resilient in recent months.

• Hurricanes in late September and October complicated the job of policymakers trying to understand the trajectory of the job market.

• Despite a bounce-back in job creation in November, the average rate of job growth has slowed down this fall, suggesting that the Fed might be inclined to help out businesses by reducing borrowing costs.

• One economists suggested Fed officials are likely to cut rates simply because financial markets are betting they will.

US stocks close out week at record high

The S&P 500 rose 0.2% and the Nasdaq 100 gained 0.9%, both ending the week at record highs, while the Russell 2000 was up 0.5%.

US stocks caught a bid after the release of a middling non-farm payrolls report for November, which seemingly cemented hopes for a rate cut at the Federal Reserve’s December meeting. Two-year Treasury yields fell about 5 basis points on the day.

Nonetheless, more S&P 500 constituents fell than rose on Friday, as was the case for every session this week.

Consumer discretionary was far and away the top S&P 500 sector ETF, gaining more than 2% with TeslaTSLA $394.70 (5.39%)’s advance continuing to boost Elon Musk’s fortune.

LululemonLULU $399.05 (15.90%) was the best-performing S&P 500 constituent, rising 15.9% after reporting better than expected earnings and boosting its full-year guidance. It was a similar story for another consumer-facing firm, Ulta BeautyULTA $426.50 (8.92%), where surprisingly strong sales and profit figures fueled a 9% rally.

Utilities and energy each fell by more than 1%.

UnitedHealthUNH $549.00 (-5.09%) was the worst performer in the S&P 500, down 5.1% to end a tragic week for the company.

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