The S&P 500 Index ($SPX) (SPY) on Wednesday closed up +0.37%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.48%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.72%.  December E-mini S&P futures (ESZ25) rose +0.36%, and December E-mini Nasdaq futures (NQZ25) rose +0.60%.

US stock indexes recovered from early losses on Wednesday and rallied as signs of strength in the US economy bolstered optimism in the economic outlook.  The monthly US ADP employment report showed private-sector employers added more jobs than expected, and activity in the US service sector expanded by the most in 8 months.  Also, strength in chipmakers on Wednesday helped lift the broader market.

Stock indexes initially moved lower on Wednesday, with the S&P 500 and Nasdaq 100 posting 1.5-week lows.  The correction in AI-infrastructure stocks continued on Wednesday, with Super Micro Computer falling more than -10% to lead the sector lower after reporting weaker-than-expected Q1 net sales. 

Higher T-note yields were also negative for stocks after better-than-expected US economic news on ADP employment and ISM services activity pushed the 10-year T-note yield to a 4-week high of 4.159% on Wednesday.

The US Treasury today announced $125 billion in sales of T-notes and T-bonds in next week’s quarterly refunding, right on expectations.  The Treasury also said it’s not looking to boost sales of notes and bonds until well into next year and will increasingly rely on short-term T-bills to fund the budget deficit.

US MBA mortgage applications fell -1.9% in the week ended October 31, with the purchase mortgage sub-index down -0.6% and the refinancing sub-index down -2.8%.  The average 30-year fixed rate mortgage rose +1 bp to 6.31% from 6.30% the prior week.

The US Oct ADP employment change rose by +42,000, stronger than expectations of +30,000.

The US Oct ISM services index rose +2.4 to 52.4, stronger than expectations of 50.8 and the fastest pace of expansion in 8 months.  However, price pressures in the service sector accelerated after the Oct ISM services prices paid sub-index unexpectedly rose +0.6 to a 3-year high of 70.0, versus expectations of a decline to 68.0. 

The markets are discounting a 62% chance of another -25 bp rate cut at the next FOMC meeting on December 9-10.

The US Supreme Court appeared skeptical on Wednesday about whether President Trump’s reciprocal tariffs are legal.  Chief Justice Roberts and Justices Gorsuch and Coney questioned President Trump’s use of an emergency-powers law to collect tariffs, with Roberts saying the tariffs were an “imposition of taxes on Americans, and that has always been the core power of Congress.”  The Supreme Court is expected to issue its ruling by late this year or early in 2026.  Lower courts have already ruled that Mr. Trump’s reciprocal tariffs are illegal, finding they are based on a specious claim of emergency authority under the 1977 International Emergency Economic Powers Act.  If the US Supreme Court upholds those rulings and strikes down the tariffs, then the US government may have to refund the reciprocal and fentanyl-linked tariffs already collected, totaling more than $80 billion, and Mr. Trump’s power to impose tariffs may be limited to well-founded sections of US trade law, such as sections 232, 301, and 201.

Q3 corporate earnings season continues at a strong clip this week, with 136 of the S&P 500 companies reporting earnings this week.  According to Bloomberg Intelligence, 80% of the S&P 500 companies that have reported so far have beaten forecasts, on course for the best quarter since 2021.  However, Q3 profits are expected to have risen by +7.2% y/y, the smallest increase in two years.  Also, Q3 sales growth is projected to slow to +5.9% y/y from +6.4% in Q2.

The US government shutdown, now in its sixth week, is the longest in history, weighing on market sentiment and the US economy.  The government shutdown is delaying a host of government reports and is having an adverse effect on the US economy. 

Overseas stock markets settled mixed on Wednesday.  The Euro Stoxx 50 closed up +0.16%.  China’s Shanghai Composite recovered from a 1.5-week low and closed up +0.23%.  Japan’s Nikkei Stock 225 fell to a 1.5-week low and closed down -2.50%.

Interest Rates

December 10-year T-notes (ZNZ5) on Wednesday closed down by -14.5 ticks.  The 10-year T-note yield rose +7.0 bp to 4.155%.  Dec T-notes gave up overnight gains and fell to a 4-week low, and the 10-year T-note yield rose to a 4-week high of 4.159%.  T-notes retreated on Wednesday after the Oct ADP employment change showed private-sector employers added more jobs than expected last month and after the Oct ISM services sector expanded at its fastest pace in eight months, hawkish factors for Fed policy.  Also, price pressures in the service sector are negative for T-notes after the Oct ISM services prices paid sub-index unexpectedly rose to a 3-year high. T-notes maintained their losses as inflation expectations rose, with the 10-year breakeven inflation rate hitting a 3.5-week high of 2.327% on Wednesday.

T-note prices have underlying support from the ongoing US government shutdown, which is now the longest in history and could lead to additional job losses, reduced consumer spending, and a weakened US economy, potentially allowing the Fed to continue cutting interest rates. 

European government bond yields moved higher on Wednesday.  The 10-year German bund yield rose to a 3.5-week high of 2.678% and finished up +1.9 bp to 2.673%.  The 10-year UK gilt yield rose to a 2-week high of 4.473% and finished up +3.7 bp to 4.463%.

The Eurozone Oct S&P composite PMI was revised upward by +0.3 to 52.5 from the previously reported 52.2, the strongest pace of expansion in nearly 2.5 years.

Eurozone Sep PPI fell -0.1% m/m and -0.2% y/y, slightly weaker than expectations of no change m/m and -0.2% y/y.

German Sep factory orders rose +1.1% m/m, stronger than expectations of +0.9% m/m and the biggest increase in 5 months.

Swaps are discounting a 4% chance for a -25 bp rate cut by the ECB at its next policy meeting on December 18.

US Stock Movers

Chip makers rallied on Wednesday, providing support to the overall market.  Seagate Technology Holdings Plc (STX) closed up more than +11% to lead gainers in the S&P 500, and Micron Technology (MU) closed up more than +9%.  Also, Marvell Technology (MRVL) closed up by more than +7%, and Lam Research (LRCX) and Western Digital Corp (WDC) closed up by more than +6%.  In addition, ON Semiconductor (ON), Qualcomm (QCOM), Applied Materials (AMAT) closed up more than +4%, and KLA Corp (KLAC), GlobalFoundries (GFS), NXP Semiconductors NV (NXPI), Analog Devices (ADI), and Intel (INTC) closed up more than +3%. 

Lumentum Holdings (LITE) closed up more than +23% after reporting Q1 adjusted EPS of $1.10, above the consensus of $1.03, and forecasting Q2 adjusted EPS of $1.30 to $1.50, stronger than the consensus of $1.17. 

Unity Software (U) closed up more than +18% after reporting Q3 revenue of $470.6 million, above the consensus of $452.6 million, and forecasting Q4 revenue of $480 million to $490 million, better than the consensus of $477 million.

Toast (TOST) closed up more than +10% after reporting Q3 revenue of $1.63 billion, better than the consensus of $1.59 billion. 

Johnson Controls International (JCI) closed up more than +8% after reporting Q4 net sales of $6.44 billion, better than the consensus of $6.33 billion.

Amgen (AMGN) closed up more than +7% to lead gainers in the Dow Jones Industrials after reporting Q3 product sales of $9.14 billion, stronger than the consensus of $8.57 billion. 

AES Corp (AES) closed up more than +6% after reporting Q3 revenue of $3.35 billion, stronger than the consensus of $3.19 billion. 

Caterpillar (CAT) closed up more than +4% after it said it is seeing a record backlog in orders for gas turbines and plans to double its capacity to produce the turbines to satisfy demand for natural gas plants to power data centers and artificial intelligence.

Zimmer Biomet Holdings (ZBH) closed down more than -15% to lead losers in the S&P 500 after reporting Q3 net sales of $2.00 billion, weaker than the consensus of $2.01 billion.

Axon Enterprise (AXON) closed down more than -9% to lead losers in the Nasdaq 100 after reporting Q3 adjusted EPS of $1.17, well below the consensus of $1.51. 

Pinterest (PINS) closed down more than -21% after forecasting Q4 revenue of $1.31 billion to $1.34 billion, weaker than the consensus of $1.34 billion. 

Kratos Defense & Security Solutions (KTOS) closed down more than -14% after forecasting Q4 revenue of $320 million to $330 million, weaker than the consensus of $333.5 million. 

Super Micro Computer (SMCI) closed down more than -11% after reporting Q1 net sales of $5.02 billion, well below the consensus of $6.09 billion. 

Arista Networks (ANET) closed down more than -8% after forecasting Q4 adjusted gross margin of 62% to 63%, below the consensus of 63.2%.

Humana (HUM) closed down more than -5% after cutting its full-year EPS forecast to $12.26 from a previous forecast of $13.77, well below the consensus of $14.69. 

Earnings Reports(11/6/2025)

Air Products and Chemicals Inc (APD), Airbnb Inc (ABNB), Akamai Technologies Inc (AKAM), Alliant Energy Corp (LNT), AstraZeneca PLC (AZN), Becton Dickinson & Co (BDX), Block Inc (XYZ), Camden Property Trust (CPT), ConocoPhillips (COP), Consolidated Edison Inc (ED), Cummins Inc (CMI), Datadog Inc (DDOG), DuPont de Nemours Inc (DD), EOG Resources Inc (EOG), EPAM Systems Inc (EPAM), Evergy Inc (EVRG), Expedia Group Inc (EXPE), Gen Digital Inc (GEN), Insulet Corp (PODD), Mettler-Toledo International I (MTD), Microchip Technology Inc (MCHP), Moderna Inc (MRNA), Monster Beverage Corp (MNST), News Corp (NWSA), NRG Energy Inc (NRG), Parker-Hannifin Corp (PH), Ralph Lauren Corp (RL), Rockwell Automation Inc (ROK), Solstice Advanced Materials In (SOLS), Solventum Corp (SOLV), Take-Two Interactive Software (TTWO), Tapestry Inc (TPR), Trade Desk Inc/The (TTD), Viatris Inc (VTRS), Vistra Corp (VST), Warner Bros Discovery Inc (WBD), Wynn Resorts Ltd (WYNN).

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