Macro
The BLS has now confirmed that there will be no October CPI or jobs report, and that the November CPI (18-Dec) and November payrolls (16-Dec) will be released after the December FOMC meeting. The Fed, therefore, enters one of the most consequential decisions of the year with no fresh inflation or unemployment data, leaving policymakers unusually dependent on partial indicators and internal models.
The most complete labour information available remains the revised August and September data, which continue to suggest cooling, not a collapse, in labour demand. September payrolls rose 119k, driven by health care, social assistance, and food services, while manufacturing and transportation shed jobs, and government hiring remained modest. August was revised down to -4k, and cumulative revisions subtracted 33k, leaving 2 of the last 4 months in negative territory. The unemployment rate increased to 4.4%, but mainly because of a 470k surge in labour force participation that offset a 251k increase in household employment. The U6 underemployment measure edged slightly lower to 8.0%. Weekly jobless claims have stabilised near 220k, with continuing claims around 1.95 million, indicating that layoffs remain contained even as hiring slows.
Other data sends mixed signals. Regional Fed surveys showed tentative stabilisation, with the New York index improving from 10.7 to 18.7, the Philadelphia index rising from -12.8 to -1.7, and the Kansas City manufacturing index increasing from 15 to 18. Factory orders rebounded 1.4% in August after a -1.3% decline in July, and existing home sales rose 1.2% in October, reaching an 8-month high. Consumer sentiment deteriorated, with the University of Michigan headline index falling from 53.6 to 51.0, and the current conditions index declining from 58.6 to 51.1, reflecting persistent concern about food, utility, healthcare, and housing costs.
Global conditions add another layer of complexity. The widening impact of US tariffs is becoming clearer, contributing to Q3 contractions in several export-dependent economies while shifting trade flows toward non-US markets. Policymakers in Europe and the UK expect global trade growth to slow through 2025 as tariff uncertainty builds, even as AI-related investment continues to support demand for chips, servers, and network equipment.
The Fed now faces a situation where stale data, a split Committee, and emerging labour-market risks have turned December into a genuine coin toss. The underlying macro mix of softening employment, contained inflation, moderating activity beneath resilient consumption, and stabilising regional surveys still leans toward further easing, but the timing is increasingly sensitive to data gaps. With no October releases to confirm or challenge the September trend, both markets and policymakers are navigating in an information fog at a moment when clarity matters most.
Rates
Treasury pricing was volatile as markets recalibrated expectations in a data vacuum. December cut odds initially fell after the BLS confirmed that neither October CPI nor the unemployment rate would be released, and after FOMC minutes showed many officials opposing a December move. Odds then recovered as the remaining labour indicators softened and New York Fed President Williams signalled openness to near-term adjustments. By week’s end, probabilities had swung between roughly 30% and the mid-60s, finishing near 63%, with the 2-year yield at a one-month low.
The committee remains split. With the fed funds rate at 3.75% to 4.00%, a level many consider close to neutral, most officials expect further easing will eventually be needed as inflation moderates. Others note inflation is still near 3% and labour cooling is limited, arguing that premature cuts risk stabilising inflation above target. This divergence is driving front-end volatility, leaving the December outcome finely balanced.
Structural pressures persist. Roughly 80% of Treasury issuance over the past year has been in bills, while 20 to 30Y maturities accounted for only about 1.7%, even as long-end yields trade near 5.5%. Funding costs rose across most developed markets: the US Treasury paid about 4.7% for 20Y supply, up from the prior auction; France paid about 2.34% for 3Y financing; Spain paid about 3.20% 10Y financing; and Canada paid about 2.87% for 5Y financing. The UK was the outlier, clearing 10Y debt around 4.61%, down from 4.77%, likely on expectations of a restrictive budget on November 26. Despite the Fed being in a cutting cycle, yields beyond the 2Y point remain above pre-cut levels, an unprecedented pattern consistent with the view that the long-end secular decline may be ending.
Regulators also highlighted growing fragility from hedge-fund basis trades. Hedge funds now hold more than 10% of the cash-Treasury market, above the pre-pandemic peak of 9.4%, as offshore funds expand their exposures. Recent research suggests official data may understate these positions by more than one trillion dollars, and other central banks have flagged record short positions in Treasury futures. Past episodes such as the 2019 repo spike and the March 2020 liquidity break showed how quickly leveraged relative-value trades can destabilise the market. With reserves tightening and repo rates occasionally pressing the top of the target range, non-bank leverage remains a key vulnerability.
High-quality duration continued to hedge equity volatility, while the curve stayed anchored by front-end expectations and long-end supply dynamics. The front end has a downward yield bias, while long maturities remain sticky as structural forces and financing needs dominate. Near-term price action will continue to track labour signals, inflation sentiment and how quickly policymakers converge on the December decision.
Credit
Corporate credit remained firm this week despite another heavy round of new issuance. AI-driven supply continues to dominate. Amazon returned with a low-teens-billion, multi-tranche deal, while Alphabet and Oracle issued 25 billion and 18 billion, respectively. Combined with Meta’s 30 billion transactions and several smaller tech financings, AI-related issuance now exceeds 200 billion for the year. It is likely to approach 250 billion if Oracle proceeds with its reported 38 billion data-centre package. This exceeds the previous 2021 record by a wide margin, reflecting the scale of the sector’s capex ambitions, which are projected to top 3 trillion through 2030.
A key feature of this cycle is the exceptional quality of the public corporate bond market. The investment-grade and high-yield indices contain the highest share of upper-tier borrowers since the early 2000s. This is not a coincidence. Over the past decade, regulatory reforms pushed banks to reduce risk-weighted lending and tighten balance-sheet usage. The result was a structural shift in credit origination: higher-quality corporates remained in public markets, while weaker, more leveraged companies migrated into private credit and direct lending funds. What used to appear as low-rated, high-yield on bank and public-market balance sheets is now packaged into private credit vehicles financed by institutional investors rather than the regulated banking sector. Public-market indices, therefore, screen as unusually clean, while much of the true credit risk has been relocated rather than reduced.
This structural shift also explains the current tone in manager commentary. Even after recent bouts of volatility, the most bearish view many investors will articulate is that spreads are unlikely to tighten further. They are not calling for meaningful widening because the public universe does not contain a large concentration of weak borrowers that historically drove spread blowouts. Stress is emerging in specific pockets, notably smaller single-B and CCC issuers with soft revenue trends, but these credits represent a smaller share of benchmarks than in prior cycles. The tension comes from a limited valuation runway rather than from widespread balance-sheet deterioration.
Meanwhile, the AI-linked segment remains the central driver of flows and hedging behaviour. Tech issuers still hold more than $1 trillion in cash and face modest annual maturities of about $70 billion through 2030, but funding pressure is rising as capex accelerates. Some hyperscalers may shift into net cash burn by 2026 as data-centre spending outpaces traditional free cash flow after buybacks and dividends. This has pushed investors toward credit-based hedges tied to the part of the tech complex most exposed to leveraged AI infrastructure investment. Oracle fits that profile. It is the most debt-dependent of the large AI spenders, making its CDS the most responsive hedging instrument for AI-capex risks. Trading volumes in Oracle CDS have surged, and spreads have widened, not due to a broad deterioration in tech credit, but because Oracle provides the cleanest hedge for a multi-trillion-dollar investment cycle with uncertain returns.
Beyond technology, the broader credit landscape remains stable. IG spreads remain tight, HY continues to show rising dispersion, and demand for CLOs and securitised products remains strong. Treasury and TIPS auctions saw modest tails but elevated direct-bidder participation, pointing to solid underlying demand despite recent rate volatility.
Equities
US equities finished the week lower in another volatile stretch. The Dow fell 1.91%, the S&P 500 declined 1.95%, the Nasdaq dropped 2.74%, and the Russell 2000 slipped 0.78%. The S&P 500 has now fallen in two of the last three weeks and the Nasdaq in three straight. The defining moment was Thursday’s dramatic reversal: the index opened up 1.9% before closing down 1.55%. Goldman Sachs noted that a negative close after opening more than 1.4% higher has occurred only twice before: April 2020 during the Covid crash and April 2025 during the Liberation Day shock. Markets recovered sharply on Friday, but liquidity remained thin and flows were dominated by de-risking.
Sector dispersion widened noticeably. Communication Services gained 3.04% on strength in digital media and select megacap names. Healthcare rose 1.83% and Consumer Staples 0.82%, while Real Estate was essentially flat. Materials at 0.64%, Utilities at 0.92%, Financials at 1.52%, and Industrials at 1.67% all underperformed on a relative basis. The deepest losses came in Technology (down 4.73%), Consumer Discretionary (down 3.25%), and Energy (down 3.09%), reflecting both profit-taking and rising scepticism around AI-linked capex and cyclical demand.
Factor moves aligned with the correction. High beta, momentum, retail favourites, and the most-shorted baskets sold off sharply as systematic strategies and hedge funds unwound overextended positions. GLP-1 beneficiaries, tariff-exposed defensives, and minimum-volatility exposures outperformed. Strength was also visible in off-price retail, casual dining, cruise lines, hotels, homebuilders, steel, pharma, regional banks, trucking, and select staples.
Megacap performance was highly uneven. Microsoft dropped 7.4% and Amazon fell 6%, both weighed down by valuation compression and rising concerns around capex intensity and cloud infrastructure ROI. Alphabet gained 8.4% on renewed optimism around Gemini 3 and improving monetisation. Semiconductors were weak, with the SOX down 5.9%. Software, networking hardware, auto suppliers, online brokers, engineering and construction names, industrial metals, oil majors, and investment banks also traded lower.
Nvidia delivered another exceptional quarter, though the results did little to stabilise broader sentiment. The company reported revenue of $57B, including $51B from data centre, EPS of $1.30, margins near 74%, and guided to $65B next quarter while highlighting accelerating compute demand and longer lifecycles for prior-generation GPUs. Analysts continued to flag potential upside to data-centre revenue through 2026 and growing visibility into the Rubin architecture. Yet the stock’s reaction underscored that positioning, not fundamentals, is driving near-term price action. Nvidia’s market cap swung more than $880B over two days, adding roughly $320B immediately after earnings before reversing $561B as sentiment deteriorated. The brief post-earnings rally faded as investors refocused on funding constraints, circular data-centre financing structures, utility bottlenecks, and the risk that hyperscaler budgets may struggle to keep pace with current infrastructure ambitions. Nvidia now stands at a market cap of about $4.34T.
Nvidia’s strong results could not shift the mood. Although the company highlighted accelerating compute demand, longer GPU lifecycles, and visibility into Blackwell and Rubin, broader concerns around capex sustainability outweighed the positives. Google’s Gemini 3 release added further competitive pressure at a time when markets were already jittery.
The dominant narrative was the momentum unwind and escalating scepticism toward the scale, circularity, and sustainability of AI-driven investment. Investors focused on capital constraints, rising corporate leverage, questions around ROI timelines, and concerns about data-centre financing turning increasingly opaque. Bloomberg highlighted widening credit spreads and the growing role of vendor-linked financing across the ecosystem. According to the latest Global FMS from Bank of America, 20% of fund managers now believe companies are over-investing, the first such majority since 2005. Technical pressure added to the unwind as the S&P 500 and Nasdaq broke below their 100-day moving averages, while VIX and MOVE rose, and systematic strategies cut exposure.
The debate has shifted from AI demand to the durability of the AI capex cycle itself. With spending running near 423 billion dollars this year and expected to exceed 1.3 trillion dollars by 2030, investors are revisiting lessons from prior technology booms. Historically, technological adoption has followed an S-curve that drives rapid price deflation as scale accelerates, while debt tends to become the dominant funding mechanism late in the cycle, introducing hidden balance-sheet vulnerabilities. Equity markets typically peak before capex rolls over, as valuations adjust to slowing returns ahead of the actual spending decline, and when investment eventually contracts, the resulting economic drag often deepens equity drawdowns. These dynamics are increasingly central to current valuations as investors reassess balance-sheet quality, funding structures, and the timing of returns across the AI ecosystem.
In retail, Walmart rose 2.8% on strong comps and another guidance raise, citing resilient consumer spending with mild softening in lower-income cohorts. Target fell 2.5% on weak comps and traffic declines. TJX delivered 3.7% comp growth with strong Q4 momentum. Williams-Sonoma gained 2.4% on resilience among higher-income consumers. Home Depot missed expectations and cut guidance, falling 5.3%. Lowe’s rose 2.8% after better-than-feared results despite its own guidance cut. Analysts debated whether outperformance at Walmart and TJMaxx reflected consumer resilience or continued trade-down behaviour, though Bank of America noted holiday spending remains above the past two years.