Early cracks in the labor market, an increasingly imbalanced stock landscape driven by AI megacaps, and rising expectations for a Fed rate cut are all converging at once—signaling a meaningful turning point for the economy and markets. In this week’s commentary, we unpack what these shifts reveal about the path ahead, the risks and opportunities now emerging, and how staying informed allows you to navigate changing conditions with clarity and confidence.
US Economy
US durable goods orders rose more than expected. Core capital goods orders saw stable growth. However, shipments of computers and electronic products declined for a second month.
Seasonally-adjusted initial jobless claims fell to the lowest level since April. Continuing claims ticked up slightly, continuing an upward trend. This signals that hiring is too weak to absorb even the low number of people losing their jobs.
Mortgage applications rose to the highest level since 2022 for comparable periods. Refinancing activity declined.
The Chicago PMI unexpectedly fell to the lowest level since May 2024. The Beige Book showed that US economic activity was broadly steady in recent weeks, but consumer spending weakened further among low- and middle-income households. It also highlighted slight employment softening, moderate price pressures, and rising concerns about slower activity ahead. Our composite Beige Book sentiment deteriorated further.
The Atlanta Fed’s GDPNow model is now tracking Q3 GDP at 3.9%.
The US economy, in nominal GDP terms, is expected to remain approximately 40% larger than China’s economy by 2030, according to IMF projections. India is expected to pass Japan for fourth place next year, and then surpass Germany in 2028–2029 to claim third place.
The TIPP Economic Optimism Index improved sharply this month.
Indonesia topped the 2024 World Giving Index with a score of 74, driven by exceptionally high volunteering and donation rates.
ChatGPT has climbed to the world’s fifth-most-visited website, overtaking Amazon.
ADP private payrolls unexpectedly declined by 32K, the biggest drop in more than two and a half years. The decline was driven entirely by a 120K job loss at small businesses. Even smoothed on a rolling three-month basis, the ADP reports have turned negative, pointing to a continued weakening in the labor market, which is why the Fed is expected to lower rates this month by 25 bps again.
US Stock Market
The top 10 largest companies continue to account for more than 40% of the S&P 500 market cap.
The market cap share of the top decile (i.e., the largest 10 percent) of all US publicly traded companies has risen to a record high of 78%.
Nvidia’s weight in S&P 500 declined by one percentage point over the past month but remains larger than five of the eleven S&P 500 sectors.
US company earnings are still well above trend, mirroring the economy, which is running above potential. The bulk of US equity returns have come from earnings expansion. By contrast, most of the euro area and China equity returns have come from multiple expansion.
Here are the most profitable companies this year.
The Fed
The market remains convinced that a 25 bps rate cut will be delivered at next week’s FOMC meeting. On December 1, the Fed officially ended its quantitative tightening (QT) program. The halting of the runoff of its balance sheet and the injection of fresh liquidity into financial markets are essential. We will discuss this more momentarily. But for investors, this change removed a persistent headwind and reignited expectations for a more accommodative stance in 2026.
The Fed’s dual mandate, which is to achieve full employment and price stability, puts it in a difficult position right now. As noted above, there is clear evidence that economic weakness is increasing, with jobs data showing signs of weakening. On the other hand, inflation remains elevated, particularly in the services sector, with inflation expectations still above the Fed’s target.
For example, Fed Chair Jerome H. Powell recently said:
“In the near term, risks to inflation are tilted to the upside and risks to employment to the downside—a challenging situation…we remain committed to supporting maximum employment, bringing inflation sustainably to our 2 percent goal.”
At this juncture, the Fed must carefully assess the risks of its next policy moves. While softening jobs data suggests the employment objective is under threat, cutting rates and increasing monetary accommodation may spark a resurgence of inflation. However, if inflation remains high, the price-stability objective is under pressure; but higher inflation slows economic activity and employment. As President Mary C. Daly recently put it:
“At this point … the risks to the inflation side of our mandate and the risk to the employment side of our mandate are in better balance. And so, we have to be thoughtful about not loosening too early, but we have to be thoughtful about not holding too long.”
The Fed will likely place greater emphasis on alternative job data, wage trends, and inflation indicators in its next policy steps. Suppose these alternative signals continue to indicate a softening job market without wage inflation escalating. In that case, the Fed’s bias will likely tilt toward easing policy to prevent a sharper economic slowdown.
Looking back, the Fed has confronted similar scenarios when job growth weakened while inflation remained above target. In the minutes of a prior meeting, the Fed noted:
“A number of participants noted … although the labor market remained strong, … there was some risk that further cooling in labor market conditions could be associated with an increased pace of layoffs.”
In a more recent context, Powell said at the March 2025 Monetary Policy Forum:
“If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly.”
That statement highlighted conditionality—policy is not on a preset course but rather depends on the data. However, it is a balancing act between cutting too much and not enough. Unfortunately, the Fed has a long history of doing both at the wrong times.
The problem for the Fed, as noted above, is that two mandates of full employment and price stability work against one another. To achieve full employment, prices will rise as economic activity increases. To reduce inflation, economic activity must slow, which in turn leads to fewer jobs being created. This is why the Fed consistently gets itself trapped in providing increasing or reducing accommodation to solve one problem, but creates a problem with the other.
Great Quotes
“Take the time to enjoy the little things, for one day you may look back and realize they were the big things.” -Robert Brault
Picture of the Week
Lencois Maranhenses National Park, Brazil
All content is the opinion of Brian Decker
