Wall Street hits records as rate cut odds fade for January

Wall Street closed the week at record levels on Friday as investors welcomed labor data that reinforced the broader narrative of a soft landing for 2026, even as it lowered the odds of an immediate interest rate cut in January. Investors rotated into housing, energy, and small-cap stocks, the Associated Press reported on Friday. The S&P 500 rose 0.6%, pushing past the record it set earlier in the week. The Dow Jones Industrial Average added 0.5%, while the Nasdaq Composite outperformed with a 0.8% rise. Smaller companies led the charge, with the Russell 2000 rising 4.6% for the week, outpacing the S&P 500’s 1.6% weekly gain.

The data — marking the first labor report to be issued on-time since the US government shutdown — sent mixed but reassuring signals. Nonfarm payrolls grew by only 50k, falling short of the 73k consensus forecast, yet the unemployment rate unexpectedly improved to 4.4%. The economy is now “slow to hire and slow to fire,” Art Hogan, chief market strategist at B. Riley Wealth, told CNBC, adding that the report carried “more good news than bad” for investors worried about an impending recession.

That resilience in unemployment was enough to cool expectations for near-term Fed easing. The probability of a rate cut at the US Federal Reserve’s January meeting fell to 5% from 11% a day earlier, CME Group data showed. Markets remain more confident about the longer horizon, still pricing in a 32% chance of two quarter-point cuts by the end of 2026.

Inflation keeps the Fed in wait-and-see mode: While lower rates could help sustain growth and support asset prices, they also risk fueling inflation, which remains above the Fed’s 2% target. “Until the data provide a clearer direction, a divided Fed is likely to stay that way,” Morgan Stanley Wealth Management Chief Economic Strategist Ellen Zentner said. “Lower rates are likely coming this year, but the markets may have to be patient,” she added.

Treasury yields reflect a market caught between near-term caution and long-term confidence. The two-year Treasury yield climbed to 3.53% from 3.49%, signalling expectations that the Fed will delay rate cuts amid steady labor conditions. At the same time, the 10-year yield slipped by two basis points to 4.167%, and the 30-year fell by four basis points to 4.814%. This divergence suggests investors believe inflation and growth will cool gradually rather than collapse, reinforcing the soft-landing narrative.

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MARKETS THIS MORNING-

Last week’s positive close on Wall Street is pushing up Asia-Pacific markets, which are all in the green this morning in early trading. Japan’s Nikkei is closed today for a holiday. Meanwhile, it appears US stock markets will not extend their rally when the opening bell rings later today, with futures for the S&P 500, Dow Jones, and Nasdaq all trading down.

THE CLOSING BELL-

The EGX30 rose 2.5% at yesterday’s close on turnover of EGP 5.8 bn (8.7% above the 90-day average). Local investors were the sole net sellers. The index is up 2.6% YTD.

In the green: Credit Agricole (+8.8%), ADIB (+8.5%), and Palm Hills Developments (+7.2%).

In the red: Eastern Company (-1.8%), Valmore Holding- USD (-0.7%), and GB Corp (-0.5%).