Bad data, but stock markets up. On Wall Street, they rejoice at the layoffs of employees

Poor data from the US labor market apparently pleased Wall Street investors. That's because they could seal the Federal Reserve's December interest rate cut, which would boost the value of financial assets.

The Dow Jones industrial average gained 0.86% on Wednesday, climbing to 47,882.90 points. She is about 500 points short of the all-time record in November. The S&P500 index was also close to the peak of the bull market, gaining 0.30% and finishing with 6,849.72 points. The Nasdaq Composite performed worse, growing only by 0.17%.

The Nasdaq (and to a large extent also the S&P500) was weighed down by Microsoft's shares falling by 2.5%. The Redmond giant was hurt by reports that it had allegedly reduced its AI software sales plans after many sales teams “failed” to deliver results. Microsoft quickly denied these revelations. But on top of that, shares of Nvidia (-1%) and Micron Technology (-2.2%) were also falling.

However, private reports on the American economy are in the spotlight, as government data arrives with a considerable delay due to the autumn shutdown of federal agencies. Here the ADP report played the first fiddle pointed to a DECREASE in employment in the private sector by 32,000. in November. This result was contrary to the market consensus, which expected a small (+5,000) but still increase in employment. The ADP report is the last labor market data that the Federal Reserve will receive before the Council meeting on December 9-10.

– Employment has been volatile recently as employers grapple with cautious consumers and an uncertain macroeconomic environment. While November's slowdown was broad-based, it was driven by a decline in the number of small businesses, said Nela Richardson, ADP's chief economist.

The poor condition of the American labor market was confirmed by the ISM report for the services sector (also for November), in which the employment sub-index was below 50 points for another month in a row – signaling the shortening of payrolls in this key sector of the US economy. But the “services” ISM itself performed quite well, increasing from 52.4 points. up to 52.6 points (a drop to 52.1 points was expected), quite unexpectedly signaling an acceleration of economic activity in the non-production sector.

However, from the investors' point of view, a slight decline in employment and an increase in the unemployment rate would be good news (at least in the short term) because it increases the chances of continued easing of the Federal Reserve's monetary policy. After today's data, the market valuation of the chances of a December cut in the federal funds rate increased from 87% to 89% – according to FedWatch Tool calculations. So we come back to the old rule: the worse, the better.

The prospect of reducing the so-called risk-free rate increases the present value of future cash flows and thus increases the model value of stocks, bonds and real estate. That's why investors – especially those from the US – like it when the Fed lowers their interest rates. It is worth remembering that after 2008, the FOMC never once voted contrary to the expectations of the so-called market. And when the market demanded it, rate cuts were delivered.

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