Stocks Turn Sharp Gains into Modest Ones as Investors Await Stronger Catalysts: Dec. 5, 2025

Stocks responded well initially to in-line PCE results and the first improvement in consumer sentiment in five months, but the enthusiasm faded close to all-time highs and benchmarks turned from sharp gains to modest ones around noon. Treasuries are extending their losing streak, however, as today’s data signaling sticky inflation has fixed-income watchers increasingly penciling two cuts in 2026 rather than three. Still, this Wednesday’s decision is strongly favored to feature a 25-bp trim, as risks of unemployment have several voting members concerned that the central bank’s posture is too restrictive at this juncture. Furthermore, UMich numbers depicted a reprieve in household expectations for future price pressures, although figures of 4.1% and 3.2% over 1- and 5-year periods were far too elevated to satisfy bond bulls. Tokyo also disappointed longs, as government officials and BoJ representatives reflected little resistance to a hike at its next meeting in roughly two weeks. In another headwind, mounting worries about elevated corporate loan issuance related to AI investments are contributing to borrowing costs jumping as well. The loftier yields are weighing on small-cap equities, as the Russell 2000 is the only benchmark of the major domestic four that is in the red. Sector breadth is strong though, with all segments advancing minus healthcare, industrials and utilities. Commodities are gaining broadly on an increase in shopper confidence and forecast contracts are additionally catching bids, while the greenback and volatility protection instruments hover near their respective flatlines.

Consumer Sentiment Rises, but is Still Low

Consumer sentiment for December posted its first increase since July as a reopened government bolstered shoppers’ moods on a relative basis. But the headline number of 53.3 remained dismal, although the figure was better than the median estimate of 52 and November’s 51. The expectations sub-index improved from 51 to 55, offsetting the modest decline in the current conditions gauge, which decreased from 51.1 to 50.7. Perceptions of labor opportunities rose; however, elevated prices continued to weigh on household psyche. Still, inflation projections over 1- and 5-year timeframes dropped despite those levels being well above the ongoing rate of cost forces and far exceeding the Fed’s 2% objective.

Retailing Weakens as Price Pressures Persist

The stale September Personal Consumption Expenditures (PCE) results met expectations but pointed to decelerating consumer spending and persistent price pressures. Indeed, volumes of goods and services purchased were flat month over month (m/m), which is the weakest performance since May. Services activity did pick up 0.2% m/m, but the 0.6% and 0.4% declines in durables and non-durables offset that gain. Costs increased 0.3% m/m and 2.8% year over year (y/y) overall and 0.2% and 2.8% in the core segment, which excludes the volatile food and energy categories. Prices for energy, nondurables, food and services rose 1.7%, 0.7%, 0.4% and 0.2% while durables charges fell a modest 0.1% m/m. The savings rate remained unchanged at 4.7%, the lowest since December 2024.

Dovish Dot-Plot Featuring 2 Cuts Would Spark Enthusiasm

Today’s data was decent, but it wasn’t nearly enough to send equities towards fresh records despite the current seasonally friendly environment on Wall Street. It’s next week’s dot-plot from the Fed that can certainly move the needle for both stocks and Treasuries alike, as fixed-income watcher expectations for cuts in 2026 will be compared to what the committee envisions ahead. Meanwhile, loftier yields amidst stalling benchmarks aren’t a terrible thing for market bulls, since they effectively lower the bar for the doves going into this Wednesday’s meeting. Indeed, if rates keep rising nearing the decision, central bank projections signaling two reductions in 2026 would motivate a strong finish to the year in Santa Claus rally fashion, as it would reprice the curve in favor of long investors. However, a group that collectively forecasts only one trim in the new annual calendar would likely lift borrowing costs and drain enthusiasm across risk assets.

International Roundup

Possible Japan Rate Hike Faces a New Hurdle

The outlook for Japan to hikes its key interest rate at its Dec. 19 meeting just became a tad less clear after a report this morning showing that October household spending unexpectedly sank 3.5% m/m and 3% year over year y/y. The economist consensus estimates called for 0.7% m/m and 1.1% y/y gains following September’s 0.7% and 1.8% y/y results. October’s y/y spending result was pulled down by sales for the transportation and communications category and the housing group tanking 9.2% and 9.1%, respectively.  Conversely, the clothing and footwear group and the education category experienced 6.3% and 7.6% increases.  Also in October, real household income and disposable income fell 0.1% and 0.4% y/y.

Retail Sales Accelerate in Singapore

Retail sales in Singapore climbed 2.3% m/m and 4.5% y/y in October, an acceleration from the 1.7% contraction and 2.7% increase in the preceding month. Cash register activity in the following categories and the extent of their changes experienced the most significant m/m October growth:

• Recreational goods, 9.5%
• Food and alcohol, 6.3%
• Cosmetics, toiletries and medical goods, 4.6%
• Furniture and household equipment, 3.4%

Conversely, spending at petrol service stations and for computer and telecommunications equipment sank 9.9% and 3.8%, respectively. Motor vehicle sales were down 1.4% followed by 1.3% declines for department stores and the supermarkets and hypermarkets category.

Japan Leading Indicator Strengthens

Japan’s Leading Index climbed 1.8% m/m in October to 110, its highest level in nearly 18 months, according to a preliminary release from the Cabinet Office. Economists expected the gauge to reach only 109.3.

EU Employment Growth Exceeds Estimates

Payrolls in the euro area grew 0.2% quarter over quarter/quarter and 0.6% y/y during the third quarter, marginally outpacing the economist consensus estimates of 0.1% and 0.5%. While the q/q addition outpaced the 0.1% ascent in the second quarter, the y/y print decelerated from 0.7%. 

Hours worked also ascended, climbing 0.4% q/q and 0.8% m/m. 

Canada’s Unemployment Rate Falls

Canada’s unemployment rate fell from 6.9% in October to 6.5% last month, a much stronger showing than the economist consensus estimate for 7%. Payrolls added 53.6k workers, which was down from 66.6k in October but much better than the consensus estimate for a 1.5k decline. The new hirers, however, are part timers with the number of full-time employees falling 9.4k. Nevertheless, it was the third consecutive month of expanding payrolls with health care and social assistance workers growing 46k followed by the 14k and 11k additions in the accommodations and food services group and the natural resources category. Wholesale and retail trade, in total, shed 34k positions. Average hourly wages, meanwhile, climbed 4%, an unchanged rate from October.