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Equities

Broadening of rally most critical for US equities now

ADMIN || 5th December 2025

The US equity rally took a breather in today’s trading at least for the Nasdaq 100, and even the S&P 500 barely eked out a gain. Still, all major US indexes remain near record levels. And the fact that sector participation has broadened suggests the advance can continue despite labor market weakness.

If one looks at the economic data underpinning the advance in shares, it’s a split screen. On the one hand, you have employment metrics, where ADP has taken center stage in the absence of official government figures. And ADP has shown private payrolls contracting in four of the last six months. Bonds have largely taken their cue here, with 10-year yields trapped in a range just above 4% and Fed fund futures showing near certainty of a rate cut next week.

But the other non-jobs data have surprised so much to the upside recently that we’ve now gone nearly five months with the Citi Economic Surprise Index above zero, the longest such streak since 2023. The numbers are barely positive, but good enough to keep equities near record highs.

Add to that cautious optimism some jitters around whether the next Fed chair will be too accommodative and you had a steepening yield curve on Thursday that helped keep equities nearly flat on the day. That weakness may not last if the data continue to come in better than expected. For example, ever since official US data started dribbling out on Nov. 17, US shares have put in a rally that has financials and industrials outpacing technology shares.

The above breadth builds the case for a better equity breakout. The big near-term hurdle for a year-end run is next week’s FOMC meeting. With a rate cut expected, investors will turn to the Fed’s dot plot and Chair Jerome Powell’s comments to glean whether the Fed is attuned enough to the labor market to take left-tail risks for equities off the table.

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