Market participants once again scooped up risk assets after some disappointing economic data solidified bets that the Federal Reserve will continue to cut rates at a gradual pace later this month.
Markets gapped higher at Wednesday's open and remained in positive territory throughout the session, bolstered by a couple of economic reports supportive of current Fed policy.
"The Santa Rally is gaining steam, thanks to weaker-than-expected economic data pointing to decelerating but still solid employment conditions," writes José Torres, senior economist at Interactive Brokers.
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This morning's "one-two punch" featured a modest miss on a proprietary payrolls report, the economist says, as well as a services sector report that came in well below estimates.
"The results are weighing on interest rates while serving to increasingly cement another quarter-point cut at the next Fed meeting," adds Torres.
Econ data disappoints
The ADP National Employment Report showed that private sector employment increased by 146,000 jobs in November and annual pay was up 4.8% year over year.
"While the ADP measure of job growth slowed, we expect workers returning from strikes and the reversing drag from recent hurricanes – which did not appear to have a meaningful impact on ADP either this month or last – to boost the official payroll figures this Friday," Goldman Sachs Chief Economist Jan Hatzius wrote in a note to clients.
Meanwhile, the Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI) registered 52.1% in November, expanding for the fifth consecutive month. However, it was down 3.9 percentage points from October's reading of 56%.
"Although the U.S. services sector is expected to continue fueling the economic expansion, momentum has faded this quarter," writes Priscilla Thiagamoorthy, senior economist at BMO Capital Markets. "That, along with a still-subdued ISM manufacturing index, suggests growth is likely moderating. Markets will now await Chair Powell's remarks this afternoon for clues on the Fed's December decision, before turning to Friday's jobs report."
In other news, factory orders increased 0.2% to $586.7 billion, according to the U.S. Census Bureau.
Taken together, the economic data were supportive of current Fed policy and helped increase the odds of a quarter-point cut coming later this month.
As of December 4, interest rate traders assigned a 78% probability to the Federal Open Market Committee (FOMC) cutting the short-term federal funds rate by 25 basis points (bps), or 0.25%, at the next Fed meeting, according to CME Group's FedWatch Tool. That's up from 67% a week ago.
At the closing bell, the blue chip Dow Jones Industrial Average was up 0.7% at 45,014, while the broader S&P 500 added 0.6% to 6,086. The tech-heavy Nasdaq Composite rose 1.3% to end at 19,735.
Stocks on the move
UnitedHealth Group (UNH) stock rose 0.9% despite the healthcare giant abruptly canceling its investor day presentation following news that the CEO of its insurance unit had been fatally shot.
Ahead of the presentation, UNH provided its outlook for fiscal 2025, calling for revenue in the range of $450 billion to $455 billion and earnings per share between $29.50 to $30.
"Overall, the outlook is in-line with expectations and represents a solid starting point for a company that guides conservatively, though the devil will be in the details," said Oppenheimer analyst Michael Wiederhorn, who has an Outperform (Buy) rating on UNH.
UNH, a Buy-rated Dow Jones stock, has the greatest influence in the price-weighted benchmark. The healthcare giant also routinely makes the list of analysts' top S&P 500 stocks to buy now.
Dollar Tree (DLTR) stock increased 1.9% after the discount retailer beat top- and bottom-line expectations for its third quarter and raised the low end of its revenue forecast for the full year.
The company now expects to achieve revenue in the range of $30.7 billion to $30.9 billion and earnings per share (EPS) of $5.31 to $5.51. DLTR had previously called for revenue in the range of $30.6 billion to $30.9 billion and EPS of between $5.20 to $5.60. It added that it continues to anticipate comparable-store sales growth in the low-single-digits.
In addition, Dollar Tree announced that its chief financial officer, Jeff Davis, is stepping down and an external search for his replacement is underway.
Pure Storage (PSTG) stock soared almost 22% after the data storage company beat expectations for its fiscal 2025 third quarter and announced it had been awarded a design win from a "top-four hyperscaler."
As a result of its strong financial performance in the first nine months of its current fiscal year, Pure Storage raised its full-year outlook. The company now anticipates revenue of approximately $3.15 billion and operating income of roughly $540 million.
That's up from its previous forecast for revenue of approximately $3.1 billion and operating income of about $532 million.
CRM pops on Agentforce AI
AI came to the rescue for software-as-a-service (SaaS) provider Salesforce (CRM) in its most recent quarter, making CRM the top-performing stock in the Dow Industrials on Wednesday.
CRM stock popped 11% after the software provider beat revenue expectations for its fiscal 2025 third quarter and provided a strong revenue forecast for its fourth quarter and full year.
CEO Marc Benioff noted the company's artificial intelligence (AI) system, Agentforce, is leading a transformation at Salesforce.
"The rise of autonomous AI agents is revolutionizing global labor, reshaping how industries operate and scale," Benioff said in a statement. "With Agentforce, we're not just witnessing the future – we're leading it, unleashing a new era of digital labor for every business and every industry."
CRM stock lags the broader market by a couple of percentage points for the year to date – but it's gaining momentum heading into 2025. Shares are up by a third over the past three months vs an increase of almost 10% for the broader market.
As for CRM's prospects going forward, the 50 analysts covering the stock surveyed by S&P Global Market Intelligence give it a consensus recommendation of Buy with high conviction.
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