Large Caps Stall but Small Caps Rally on Looser Policy and Solid Economy: Dec. 4, 2025

Stocks are stalling less than 1% from all-time highs as investors look for new catalysts to trade up to fresh records. Waning AI sentiment has tech shares underperforming as participants react to anecdotal evidence stating that sales of applications associated with the modern technology have failed to meet internal expectations at Microsoft, while separately, Meta is enacting deep budget decreases in its Metaverse unit. Rising interest rates aren’t helping equities either, as outplacement firm Challenger, Gray & Christmas reported declining plans to trim workforces last month while the government released the lowest number of initial unemployment claims in 38 months during the week of Thanksgiving. Yields are indeed climbing and paring back yesterday’s gains following those two prints, which have fixed-income watchers balancing statistics that signal lightening layoffs against data from ADP and Revelio depicting a consistent trajectory of job losses in the second half of this year. Treasury action can intensify further on Friday, with the Fed’s preferred price pressure gauge due before the bell while UMich is scheduled to publish its critical inflation expectation figures intraday tomorrow.

Small-Cap Rally Continues

But despite the cost of capital expanding, the cyclically oriented Russell 2000 is the only major domestic equity benchmark sporting a meaningful gain so far today; it’s higher by 0.7%, as the small-cap index is sustaining its recent momentum and is poised to rally in an environment of looser financial conditions helped by a projected 25-bp cut on Wednesday alongside a still solid economy.

Other Investment Categories Are Mixed

Furthermore, performance across sectors is split, with volatility protection instruments, the greenback being relatively unchanged. Crude oil, lumber and gold are appreciating, however, silver, copper and natural gas are retreating.

Layoffs Drop to Lowest Level Since 2022

Unemployment claims plunged in the past two weeks with the initial segment tumbling to its lowest level since September 2022. First-time applications dropped to 191k last week, well below the median estimate of 220k and the previous report’s 218k. Continuing filings also took a dive, falling to 1.39 million during the seven-day interval ended Nov. 22, beneath projections of 1.60 million and the previous period’s 1.943 million. Four-week moving averages tanked across both indicators, from 224.25k and 1.952 million to 214.75k and 1.945 million. Separate numbers from Challenger, Gray & Christmas pointed to layoff plans dropping to 71.3k last month from 153.1k in October.

Week Will End with Two Critical Reports

The Russell 2000 is gearing up for a fresh record if gains extend this afternoon or if economic data out tomorrow is conducive to another robust advance. The delayed Personal Income & Outlays report from September and this month’s Consumer Sentiment print from the University of Michigan (UMich) are on deck to finish the week, and in-line to weaker results on the former alongside slowing inflation expectations within the latter can catapult the index to heights never seen before. Indeed, the path for the small-cap, cyclically oriented benchmark would widen if two to three rate cuts next year become three to four, as long as the reductions are motivated by softening cost pressures and employment risks and not an actual manifestation of increased joblessness. Conversely, if rapid policy accommodation is a response to meaningfully higher unemployment or cratering household spending, then the basket won’t appreciate much from here. A contained expansion and lighter yields are the perfect combination for the broadening trade that disproportionately benefits the Russell.

International Roundup

Euro Area Retailing Was Flat in October

October retail sales in the euro area were 1.5% higher in real terms than during the year-ago period, but were flat relative to September, according to Eurostat. The year-over-year print accelerated from September’s 1.2% result but missed the economist consensus estimate of 1.4%. The monthly pace matched estimates but slowed from 0.1% in September. For this metric, the non-food products except automotive fuel category was the culprit, logging a 0.2% month-over-month (m/m) decline. Sales volumes for the two other broad categories, food, drinks, tobacco and automotive fuel, both climbed 0.3%.

While Construction Decline in Europe Slows

The contraction of the construction industry in the eurozone continued at a considerable pace in November but eased slightly from the preceding month with the HCOB Eurozone Construction Purchasing Managers Index (PMI) climbing from 44 to 45.4. A less pronounced decline in new orders helped push the headline up.

UK Construction Plunges

The United Kingdom Construction PMI sank from 44.1 in September to 39.4 last month, falling deeper below the 50 contraction-expansion threshold. Residential construction fell to pandemic levels and in other discouraging developments, job layoffs accelerated, sentiment sank and input costs, including wages, grew.

Gold Drives Australia Trade Surplus Higher

Australia’s trade balance grew from $3.7 billion in September to $4.38 billion In October but missed the economist consensus estimate of $4.4 billion. October exports were up 3.4% m/m, largely a result of non-monetary gold shipments soaring 14.2%. General merchandise increased only 1.9%. Within this category, non-rural goods, which includes metals, ores, transportation equipment, minerals and machinery, was up 2.1%. Rural goods, which consists primarily of agricultural products such as meat, grains, wool and sheepskins, climbed only 0.9%. Imports, meanwhile, climbed 2% m/m with purchases of non-monetary gold up 80%.