Investors need answers

Wednesday’s called “hump day” for a reason, and stocks have been struggling to get over recent hurdles.

The problem? The market’s been trapped in a tug-of-war between AI bubble fears and hopes of a Fed rate cut next week. Today was a classic case of mixed messages: Payroll processor ADP reported that private employers cut 32,000 jobs in November, more than economists anticipated. That ups the odds that the Federal Reserve will slash interest rates at its next meeting on December 9 and 10, giving stocks a boost.

On the other hand, worries rippled through Wall Street after a report surfaced that Microsoft lowered sales growth targets for certain artificial intelligence products. Although Microsoft denied these allegations as inaccurate, its stock swung wildly, finishing down 2.5% for the day and spooking investors that the AI trade may still be unsteady.

This heady mix of AI exuberance and job market jitters has everyone scratching their heads and wondering: Which way will this cookie crumble?

We’re about to find out

Although the stock market’s been a hot mess lately, it might finally pull itself together by week’s end. That’s when the Fed’s favorite inflation gauge, the PCE report, returns from its government shutdown-induced blackout to shed some much-needed light on the state of the economy.

Last we heard, the personal consumption expenditures price index rose by 2.7% year over year in August. For Friday’s October reading, analysts expect annual PCE to rise 2.8%. Higher inflation should mean that the Fed hesitates to cut interest rates, but the market seems to think that Jerome Powell & Co. will pull the trigger regardless: Fedwatch odds currently hover at 89% that the FOMC will cut rates next week.

Although Friday’s PCE report will bring some clarity, it will take longer to get the full picture.

“Friday’s PCE release may have modest impact, but investors [seem] instead focused on the softer labor market,” US Bank Asset Management senior investment strategy director Rob Haworth told Brew Markets. “This makes the November jobs report on December 16 an important directional release.”

Even if the Fed cuts rates on December 10, and hints that more cuts may be coming in 2026, that doesn’t mean a market rally is a sure thing. “I think it’s a stretch to say stocks will continue to do well,” added Kevin Gordon, head of macro research and strategy at Schwab Center for Financial Research. “That’s especially true if cut probabilities increase due to weaker labor data, which could raise the risk of recession.”

In other words, Friday may just be another day to end with an IPA and a “I’ll get back to figuring this out on Monday.”—JD