Market Rally Sparked by Soft Economic Data—Fed Rate Cut Odds Jump to 80%

US stocks closed higher on Tuesday, shaking off early losses to finish the day strong. The S&P 500 rose 0.91%, the Dow Jones climbed 1.43% to hit a 1-week high, and the Nasdaq 100 gained 0.58%. December futures followed suit, with E-mini S&P 500s up 0.90% and E-mini Nasdaq futures up 0.56%.

The catalyst? A batch of dovish economic data that has traders betting big on a Fed rate cut in December.

The Economic Data That Changed Everything

September retail sales came in at +0.2% month-over-month—below the +0.4% consensus. More telling: the Conference Board’s November consumer confidence index dropped 6.8 points to 88.7, marking a 7-month low and missing expectations of 93.3 by a mile.

The ADP employment report also showed private payrolls declined by an average of 13,500 weekly over the past four weeks. Meanwhile, September core PPI (ex-food and energy) rose just 2.6% year-over-year, missing the 2.7% forecast.

Wall Street read all this as a green light: markets are now pricing in an 80% probability of a -25 basis point rate cut at the December 9-10 FOMC meeting. That’s a significant jump from previous expectations.

Bonds Rally, But Stocks Take the Crown

The 10-year Treasury yield fell 2.3 basis points to 4.002%, hitting a 3.5-week low. The 10-year breakeven inflation rate also compressed to 2.212%, a 7.25-month low, suggesting markets are pricing in lower inflation expectations ahead.

Treasury demand was solid too—the $70 billion 5-year note auction drew a bid-to-cover ratio of 2.41, above the 10-auction average of 2.37.

Stock Winners and Losers

The Movers:

• Tech dominance: Meta surged over 3%, Alphabet and Amazon each rose more than 1%, while Microsoft, Apple, and Tesla all posted modest gains
• Housing stocks rocketed: Lower Treasury yields boosted the housing sector. Builders FirstSource jumped over 8%, with DR Horton, Toll Brothers, and Lennar each up more than 6%
• Earnings beats: Keysight Technologies led S&P 500 gainers with a 10%+ rally after beating Q4 revenue forecasts and raising Q1 guidance. Zoom jumped 9% on strong Q3 results and raised 2026 revenue targets
• Retail surprise: Kohl’s exploded 42% after Q3 sales beat and the company raised full-year guidance

The Laggards:

• Nvidia stumbled 2%+ after reports that Meta is in talks to buy Google’s TPUs for data centers in 2027—signaling Google is making real progress as a competitor in AI chips
• Burlington Stores dropped 11% on Q3 revenue missing estimates
• Oracle fell 2% after a CFRA downgrade from buy to hold

What’s Next?

This week brings critical data: initial unemployment claims (Wednesday), Chicago PMI, and the Fed Beige Book. Markets will be laser-focused on any sign of economic weakness that could cement a December rate cut.

Meanwhile, Q3 earnings season is wrapping up with 475 of 500 S&P companies reporting. Bloomberg data shows 83% beat forecasts—on track for the best quarter since 2021. Q3 earnings rose 14.6%, more than double the 7.2% forecast.

The narrative is clear: weaker growth + lower inflation expectations = rate cut coming. The real question now is whether December’s data can derail that train.