Markets Rise in a Quiet, Holiday-Shortened Week

December 1, 2025

Financial Markets

Despite a quiet, holiday-shortened week with limited market-moving news, U.S. equities still advanced meaningfully. With the help of this week, the S&P 500 closed November with a small gain (+0.25%) after dropping nearly 5% earlier in the month, marking its seventh consecutive month of gains. Most of the week’s strength was driven by renewed optimism for Federal Reserve easing at the December meeting, as dovish remarks from multiple Fed officials pushed market-implied odds of a rate cut sharply higher. Fed Funds futures now show about an 80% chance of a December rate cut, up sharply from about 30% the previous week.

Seasonal trends also contributed to improving sentiment. The period from Thanksgiving to the end of the year has historically been positive for stocks, often called the “Santa Claus rally.” With changing monetary policy expectations and seasonal factors supportive, equity markets start December with a modest tailwind.

Economics

Economic data releases continue to normalize after the extended government shutdown, but backlogs still remain significant. The most closely watched reports this week were the delayed September Retail Sales and Producer Price Index (PPI) figures.

Retail sales showed a muted increase, coming in softer than expected and signaling that consumers may be growing more selective after a period of steady spending. Meanwhile, producer price data revealed a clear cooling trend, with both overall and core measures rising more slowly than in previous months. Together, these reports suggest easing cost pressures along the production pipeline and weaker demand, supporting the view that inflation will continue to moderate gradually. Incoming data from Black Friday and Cyber Monday will offer a clearer picture of consumer strength as the holiday shopping season unfolds.

Labor market readings were mixed. Initial unemployment claims dropped to their lowest level in nine months, but continuing claims remained near year-to-date and four-year highs, signaling that workers who have lost jobs are struggling to find new ones. As official data continues to catch up, markets have relied heavily on claims, private trackers, and alternative indicators to gauge underlying momentum.

The Federal Reserve’s latest Beige Book painted a picture of an economy that remains mostly stable but is losing momentum. Most districts reported little change in activity, with consumer spending steady or declining outside of high-end retail. Labor market conditions showed clearer signs of cooling: about half of the districts reported falling employment, with hiring freezes, replacement-only hiring, and attrition replacing layoffs. Inflation pressures have eased, though some input costs, such as those tied to tariffs and utilities, remain elevated. Banks noted a modest deterioration in credit quality, reflecting increased household strain, even as overall economic growth remains steady.

Conclusion

As agencies continue to reset publishing calendars following the end of the shutdown, the economic visibility gap remains unusually wide. Several releases have been delayed, and others, like the October employment report, will not be released at all. The next payrolls report is now scheduled for December 16th, after the FOMC meets on December 10th. Until then, markets will place outsized weight on weekly claims, private spending trackers, and Federal Reserve communication.

Macro clarity is improving but unevenly. Inflation seems to be easing, and the labor market is slowing gradually rather than abruptly. Still, internal Fed debate remains active, even as the balance of commentary has tilted more dovish recently. With markets now pricing in a high probability of a December easing and seasonal trends becoming more favorable, investors will closely watch to see if incoming data confirm this increasingly confident policy outlook.

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