Market Note: Markets Rebound as Labor Strength and Holiday Spending Shift Sentiment

By Hightower Great Lakes on December 8, 2025

Last Week Recap

At the start of last week, broader sentiment was dominated by concerns around the risk-off move, including pressure from Bitcoin volatility and renewed focus on the Japanese carry trade.

By week’s end, those fears had largely faded as incoming data shifted the tone back toward risk-on. Weekly jobless claims and holiday spending played a central role in stabilizing sentiment and driving markets higher.

Labor Market Surprise

The most significant data point last week came from weekly jobless claims, which fell to 191,000, the lowest level since September 2022.[1] Unlike the ADP and nonfarm Payroll reports, the weekly jobless claims are more real-time vs backward-looking.  The 3-week average is at 219K, which is well below historical recessionary levels of 350K-375K.

Consumers Are Spending

The second major catalyst was the strength of holiday and retail sales. Government data last month showed retail sales rising 4.5%, and this week’s holiday metrics confirmed the trend.

Black Friday sales were up +9% year-over-year, and Cyber Monday sales increased +7% year-over-year.[2] Consumers continue to spend because it is strongly supported by a still-resilient labor market.

Fed Expectations and Year-End Setup

Markets are now pricing in a 93% probability of a rate cut this week, albeit a hawkish one, where the commentary will be more measured on further cuts ahead.[3] A cut is not only supportive for financial conditions but also adds further momentum behind consumer activity. Alongside economic strength, seasonality remains a powerful tailwind.

With the Atlanta Fed GDPNow at 3.5%, strong labor data, resilient consumption, and favorable year-end positioning, the setup into December looks constructive. The backdrop also suggests we may see additional performance-chasing as investors look to catch up heading into year-end.

Accelerating Loan Growth

Financials continue to stand out, with the sector hitting new highs as the yield curve steepens, which is a notable tailwind for banks after nearly a decade without a true net-interest-income cycle.

A steeper curve directly improves profitability by widening the spread between what banks earn on loans and what they pay on deposits, and this shift is arriving at a time when underlying credit activity is also picking up.

The latest H.8 data from the Federal Reserve shows seven consecutive weeks of loan growth, the longest stretch since Q2 2022. This marks a meaningful change in trend; banks not only hold excess capital but are increasingly deploying it back into the economy through renewed lending. While the sector is no longer as deeply discounted as it was earlier in the year, valuations remain attractive relative to the S&P 500.

Fixed Income

U.S. Treasuries weakened last week as yields advanced higher into the heavy macro and policy calendar this week. By Friday’s close, the 2-, 10-, & 30-year yields rose by 7, 12, & 13 basis points, respectively.

Market focus now turns to the Federal Open Market Committee’s December policy meeting scheduled for this Wednesday, where market participants are pricing in almost a 100% chance of a 25-basis point reduction in the federal funds rate.

Credit markets saw continued strength last week. Investment-grade spreads tightened 4 basis points to +111, while high-yield spreads narrowed 13 basis points to +338. U.S. credit ratings deteriorated last week as the main agencies issued 18 downgrades and 17 upgrades. The Materials sector led with the most downgrades, while Financials led with the most upgrades.

Tax-exempt yields followed Treasuries higher, rising 1-4 basis points across the curve. This week’s diminutive $8.4 billion in tax-exempt issuance is expected to be well absorbed by the market, following last week’s successful digestion of $16 billion – the third largest week of tax-exempt supply this year.[4]

Return for Selected Indices[5]

Click here to read last week’s Market Note (12/1).

Disclosures

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[1] Bloomberg: As of December 2025

[2] CNBC: As of December 2, 2025

[3] Bloomberg: As of December 8, 2025

[4] Bloomberg: As of December 8, 2025

[5] Source: Bloomberg. As of December 8, 2025.