The main U.S. stock indexes closed higher Wednesday after investors, traders and speculators sorted another set of employment data. Market participants seem encouraged by the prospect of at least one more rate cut by the Federal Reserve as another record-setting earnings season winds down.
The ADP National Employment Report has all but sealed a rate cut at the next Fed meeting. Private-sector payrolls were down 32,000 in November vs a FactSet-compiled consensus forecast for 40,000 new jobs. The probability the central bank trims the target range for the federal funds rate by 25 basis points next week is 89.0%, up from 88.0% on Tuesday, according to CME FedWatch.
"Hiring has been choppy of late as employers weather cautious consumers and an uncertain macroeconomic environment," ADP Chief Economist Nela Richardson said, noting a broad-based slowdown led by a pullback among small businesses. November's decline follows an upwardly revised gain of 47,000 in October.
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But it's the third decline in four months for private-sector payrolls, and, along with combined losses of 32,000 in August and September, establishes a downward trend, according to BMO Capital Markets Senior Economist Sal Guatieri.
Weakness was widespread across industries, while small businesses shed staff for a fourth straight month. "This might reflect smaller firms struggling more to adapt to tariff-related supply disruptions," Guatieri said.
"The Fed won't have the BLS's official November jobs report before next week's policy decision," Guatieri concludes, "but the ADP report might be all that it needs for the more dovish-leaning governors to counter some hawkish-leaning regional presidents to push through another rate cut."
Meanwhile, UnitedHealth Group (UNH, +4.7%) was the top-performing Dow Jones stock after Roundhill Investments launched the Roundhill UNH WeeklyPay ETF (UNHW, +4.9%), a single-stock exchange-traded fund that generates weekly income.
At the closing bell, the blue-chip Dow Jones Industrial Average had added 0.9% at 47,882, the broad-based S&P 500 was up 0.3% to 6,849 after opening in the red, and the tech-heavy Nasdaq Composite had also rallied from a negative start to post a 0.2% gain at 23,454.
Fly like American Eagle Outfitters
American Eagle Outfitters (AEO, +15.1%) soared on a beat-and-raise fiscal third-quarter report, outshining multiple hot AI-related names on the earnings calendar in the process. People may say they're frustrated right now, but they keep spending money … at least at American Eagle Outfitters.
The consumer discretionary stock rose as much as 17.2% after the retailer posted earnings of 53 cents per share (+29.3% year over year) on sales of $1.36 billion (+5.7% YoY). Wall Street expected EPS of 43 cents on sales of $1.32 billion.
"Strong momentum has continued into the fourth quarter," CEO Jay Schottenstein said in a statement, "including an excellent start to the holiday season." The CEO cited a "record-breaking Thanksgiving weekend, led by an acceleration in demand across brands and channels and underscored by outstanding growth" for American Eagle's two key channels.
The retailer raised its guidance for fourth-quarter operating income from a range of $125 million to $130 million to $155 to $160 million based on estimated comparable sales and total revenue in the range of 8% to 9%.
About that AI hyperscaler spending
AEO outshone tech stocks such as Asana (ASAN, +7.8%), Box (BOX, +6.7%), Marvell Technology (MRVL, +7.9%) and Okta (OKTA, +5.5%), which also posted impressive gains after reporting results and sharing guidance.
CrowdStrike (CRWD, +1.6%) was down as much as 5.9% and bounced around the breakeven line before closing higher. But Gitlab (GTLB, -12.8%) and Pure Storage (PSTG, -27.3%) simply got crushed.
GTLB suffered because its expectations-beating revenue figure was "more modest than expected," according to Mizuho analyst Gregg Moskowitz, who reiterated his Neutral (or Hold) rating on GTLB but cut his 12-month target price from $52 to $47.
PSTG was down big even though it beat revenue estimates, met earnings forecasts and raised its guidance for full-year operating income from $615 million to $634 million. What management didn't do is provide a meaningful estimate for fiscal 2027 sales to AI hyperscalers, including its customer Meta Platforms (META, -1.2%).
"Given this lack of visibility," Susquehanna analyst Mehdi Hosseini cut his rating on PSTG to Neutral (or Hold) from Positive (or Buy). Hosseini maintained his $100 12-month target price as he "waits for greater insight into the company's hyperscaler business."
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