MARKET INSIGHTS
Weekly market commentary
Dec 01, 2025 | Blackrock Investment Institute
Soft labor market keeps Fed cut in play
Market take
Weekly video_20251201
Nicholas Fawcett
Senior Economist, BlackRock Investment Institute
Opening frame: What’s driving markets? Market take
Camera frame
The Federal Reserve looks poised to cut interest rates for the third time next week. We think it’s warranted. Why? September payrolls and recent jobless claims data highlighted some cooling in the labor market.
Title slide: Soft labor market keeps Fed cut in play
1: No hiring, no firing stasis
The Fed has a harder time understanding the economy given data delays tied to the long government shutdown.
But the September jobs report and other data show the labor market in a no hiring, no firing stasis. Both demand for workers and the supply of workers have fallen, with the latter due to a sharp slowing of migration.
2: A deluge of delayed data
The delayed data includes both October and November jobs numbers. They’re likely to be noisy and will come after the Fed meets on December 10.
Markets are mostly pricing in a quarter-point cut next week. We agree and think a softening labor market gives the Fed reason to cut further. That’s different from earlier this year when the Fed was facing calls to cut rates even with data showing strong job gains. Those calls highlighted the policy tension between tackling sticky inflation and keeping U.S. debt sustainable.
3: The UK’s positive budget surprise
Part of this tension stems from persistently large U.S. budget deficits. The opposite is happening in the UK: the government is trying to reduce its deficit and even achieve a surplus on a five-year horizon in the latest budget.
The UK Chancellor delivered a positive surprise with various revenue raises boosting the buffer between government revenues and spending by more than expected.
Outro: Here’s our Market take
We stay neutral on UK gilts as the new budget front-loaded spending and back-loaded much of the tax gains.
We think a Fed rate cut this month is in play as other indicators show the labor market softening. That backdrop, along with the AI theme, underpins our pro-risk stance.
Closing frame: Read details: blackrock.com/weekly-commentary
More labor market cooling
Recent signs of U.S. labor market softening tee up a third-straight Fed rate cut next week. We eye confirmation of this ongoing cooling in U.S. data this month.
Market backdrop
The S&P 500 rallied during a short trading week as the AI theme bounced back. U.S. 10-year Treasury yields fell as Fed rate cuts were priced back in.
Week ahead
U.S. initial jobless claims remain key as markets await backlogged payrolls figures. Consumer sentiment is also a focus after weak retail sales data.
The Federal Reserve looks poised to cut interest rates again next week while awaiting a backlog of U.S. economic data after the government shutdown. We think this is warranted given a cooling labor market, reflected in the September payrolls and recent jobless claims data. A soft labor market allows Fed policy easing, one reason we stay pro-risk. We see a risk of revived tensions between sticky inflation and debt sustainability in the U.S. The UK shows how fiscal pressures are global.
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Slower hiring
Monthly change in U.S. payrolls and breakeven estimate, 2023-2025
Forward-looking estimates may not come to pass. Source: BlackRock Investment Institute, with data from U.S. Bureau of Labor Statistics, November 2025. Note: The chart shows monthly changes in U.S. nonfarm payroll employment and the three-month moving average. The dashed green line shows our estimates of payroll growth consistent with slowing population growth and elevated migration.
The Fed has cut rates twice already this year and put a weakening labor market at the center of its decisions. The central bank worries that the labor market could weaken further, so “risk management” rate cuts were needed. The Fed has a harder time understanding the state of the economy given the data delays tied to the long government shutdown heading into next week’s meeting. The September jobs report and other data show the labor market in a “no hiring, no firing” stasis. Job gains have slowed since the start of the year. See the chart. Both labor demand and supply has slowed, the latter due to a sharp slowing of migration. That has pulled down the “breakeven” level of payrolls gains that keep the unemployment rate steady. It could also explain why wage growth has also proved steady, and the unemployment rate has only risen slightly this year – and is still historically low.
The delayed data – including both the October and November payrolls data on Dec. 16, but no October unemployment data – is likely to be noisy. The October data will include deferred federal government layoffs that will likely cause a sharp drop in overall employment that month – something the Fed would have already taken into account in earlier decisions. And this data will be released after its Dec. 10 policy decision. Markets are mostly pricing in a quarter-point cut next week. We agree and see a “no hiring, no firing” stasis giving the Fed room to keep trimming policy rates in 2026. That’s different from earlier this year when the Fed was facing calls to cut rates even with the labor data appearing strong, raising policy tensions between sticky inflation and debt sustainability. The Fed now has a path to cut rates without raising questions around these policy tensions, even as inflation holds well above its 2% target. If inflation were to accelerate next year due to stronger activity or renewed hiring, those tensions could re-emerge and drive long-term bond yields higher.
Slower hiring
Part of this tension stems from persistently large U.S. budget deficits. The opposite is happening in the UK: the government is trying to reduce its deficit and even achieve a surplus on a five-year horizon in the latest budget. The UK Chancellor delivered a positive surprise with various revenue raises boosting its so-called “fiscal headroom” – the buffer between government revenues and spending – by more than expected. This shows how the UK needed to strike a balance on market and political credibility and has done so for now, even if the tax revenue as a share of GDP is set to hit a record 38% in 2030.
We stay neutral on UK gilts as the new budget front-loaded spending and back-loaded much of the tax gains. Yet we have a relative preference for gilts on a strategic horizon of five years or longer, thanks in part to a lower neutral rate – one that neither stimulates nor hurts growth – than other developed market (DM) government bond markets. We had upgraded long-term U.S. Treasuries to neutral as the Fed resumed rate cuts but need to be nimble given the simmering policy tensions – and expect those tensions to persist. Our updated tactical views in our 2026 Global Outlook are due out tomorrow, Dec. 2.
Our bottom line
We think a Fed rate cut this month is in play as data keep showing the labor market cooling. That backdrop and the AI theme support our pro-risk stance. We stay neutral UK gilts but prefer them on longer horizons over other DM bonds.
Market backdrop
U.S. stocks bounced back during the holiday-shortened week, with the S&P 500 gaining almost 4% as the AI theme returned. The Nasdaq gained about 5%. That helped erase most losses for the month, apart from the Nasdaq, during which AI stocks, shares popular with retail traders and bitcoin came under pressure. Bitcoin recovered over the week but was still down about 17% on the month. U.S. 10-year Treasury yields fell back near 4.00% as Fed cuts were priced back in.
The U.S. ISM index will give a read on the health of the struggling manufacturing sector. U.S. jobless claims remain a key focus on the labor market as markets await the resumption of the U.S. payrolls data in mid-December. The University of Michigan consumer sentiment survey – which has showed much weaker sentiment relative to other surveys – may get more focus given the softer retail sales data, though for September, seen last week.
Week ahead
Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not account for fees. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from LSEG Datastream as of November 20, 2025. Notes: The two ends of the bars show the lowest and highest returns at any point year to date, and the dots represent current year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in U.S. dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE U.S. Dollar Index (DXY), spot gold, spot bitcoin, MSCI Emerging Markets Index, MSCI Europe Index, LSEG Datastream 10-year benchmark government bond index (U.S., Germany and Italy), Bloomberg Global High Yield Index, J.P. Morgan EMBI Index, Bloomberg Global Corporate Index and MSCI USA Index.
Nov. 24
Germany Ifo business confidence
Nov. 26
U.S. weekly jobless claims
Nov. 28
Chicago PMI; Euro area country CPIs
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Big calls
Our highest conviction views on six- to 12-month (tactical) and over five-year (strategic) horizons, December 2025
| Reasons | ||
|---|---|---|
| Tactical | ||
| Still favor AI | We see the AI theme supported by strong earnings, resilient profit margins and healthy balance sheets at large listed tech companies. Continued Fed easing into 2026 and reduced policy uncertainty underpin our overweight to U.S. equities. | |
| Select international exposures | We like Japanese equities on strong nominal growth and corporate governance reforms. We stay selective in European equities, favoring financials, utilities and healthcare. In fixed income, we prefer EM due to improved economic resilience and disciplined fiscal and monetary policy. | |
| Evolving diversifiers | We suggest looking for a “plan B” portfolio hedge as long-dated U.S. Treasuries no longer provide portfolio ballast – and to mind potential sentiment shifts. We like gold as a tactical play with idiosyncratic drivers but don’t see it as a long-term portfolio hedge. | |
| Strategic | ||
| Portfolio construction | We favor a scenario-based approach as we learn more about AI winners and losers. We lean on private markets and hedge funds for idiosyncratic return and to anchor portfolios in mega forces. | |
| Infrastructure equity and private credit | We find infrastructure equity valuations attractive and mega forces underpinning structural demand. We still like private credit but see dispersion ahead – highlighting the importance of manager selection. | |
| Beyond market-cap benchmarks | We get granular in public markets. We favor DM government bonds outside the U.S. Within equities, we favor EM over DM yet get selective in both. In EM, we like India which sits at the intersection of mega forces. In DM, we like Japan as mild inflation and corporate reforms brighten the outlook. | |
Note: Views are from a U.S. dollar perspective, December 2025. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any particular funds, strategy or security.
Tactical granular views
Six- to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, December 2025
We have lengthened our tactical investment horizon back to six to 12 months. The table below reflects this and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at a time of heightened volatility.
| Asset | Tactical view | Commentary | ||||
|---|---|---|---|---|---|---|
| Equities | ||||||
| United States |  |
We are overweight. Strong corporate earnings, driven in part by the AI theme, are supported by a favorable macro backdrop: continued Federal Reserve easing, broad economic optimism and less policy uncertainty, particularly on the trade front. | ||||
| Europe |  |
We are neutral. We would need to see more business-friendly policy and deeper capital markets for recent outperformance to continue and to justify a broad overweight. We stay selective, favoring financials, utilities and healthcare. | ||||
| UK | |
We are neutral. Valuations remain attractive relative to the U.S., but we see few near-term catalysts to trigger a shift. | ||||
| Japan | |
We are overweight. Strong nominal GDP, healthy corporate capex and governance reforms – such as the decline of cross-shareholdings – all support equities. | ||||
| Emerging markets (EM) | |
We are neutral. Economic resilience has improved, yet selectivity is key. We see opportunities across EM linked to AI and the energy transition and see the rewiring of supply chains benefiting countries like Mexico, Brazil and Vietnam. | ||||
| China | |
We are neutral. Trade relations with the U.S. have steadied, but property stress and an aging population still constrain the macro outlook. Relatively resilient activity limits near-term policy urgency. We like sectors like AI, automation and power generation. We still favor China tech within our neutral view. | ||||
| Fixed income | ||||||
| Short U.S. Treasuries | |
We are neutral. We see other assets offering more compelling returns as short-end yields have fallen alongside the U.S. policy rate. | ||||
| Long U.S. Treasuries |  |
We are underweight. We see high debt servicing costs and price-sensitive domestic buyers pushing up on term premium. Yet we see risks to this view: lower inflation and better tax revenues could push down yields near term. | ||||
| Global inflation-linked bonds | |
We are neutral. We think inflation will settle above pre-pandemic levels, but markets may not price this in the near-term as growth cools. | ||||
| Euro area government bonds | |
We are neutral. We agree with market forecasts of ECB policy and think prices reflect the risk that German fiscal issuance raises yields. We prefer government bonds outside Germany. | ||||
| UK gilts | |
We are neutral. The recent budget aims to shore up market confidence through fiscal consolidation. But most borrowing cuts won’t go into effect for several years, leaving room for domestic pressures to hinder execution and fuel volatility. | ||||
| Japanese government bonds |  |
We are underweight. Rate hikes, higher global term premium and heavy bond issuance will likely drive yields up further. | ||||
| China government bonds | |
We are neutral. China bonds offer stability and diversification but developed market yields are higher and investor sentiment shifting towards equities limits upside. | ||||
| U.S. agency MBS | |
We are overweight. Agency MBS offer higher income than Treasuries with similar risk, and may offer more diversification amid fiscal and inflationary pressures. | ||||
| Short-term IG credit |  |
We are neutral. Corporate strength means spreads are low, but they could widen if issuance increases and investors rotate into U.S. Treasuries as the Fed cuts. | ||||
| Long-term IG credit | |
We are underweight. We prefer short-term bonds less exposed to interest rate risk over long-term bonds. | ||||
| Global high yield | |
We are neutral. High yield offers more attractive carry in an environment where growth is holding up – but we think dispersion between higher and weaker issuers will increase. | ||||
| Asia credit | |
We are neutral. Overall yields are attractive and fundamentals are solid, but spreads are tight. | ||||
| Emerging hard currency |  |
We are overweight. A weaker U.S. dollar, lower U.S. rates and effective EM fiscal and monetary policy have improved economic resilience. We prefer high yield bonds. | ||||
| Emerging local currency | |
We are neutral. A weaker U.S. dollar has boosted local currency EM debt, but it’s unclear if this weakening will persist. | ||||
Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a U.S. dollar perspective. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.
Euro-denominated tactical granular views
Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, December 2025
We have lengthened our tactical investment horizon back to six to 12 months. The table below reflects this and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at a time of heightened volatility.
| Asset | Tactical view | Commentary | ||
|---|---|---|---|---|
| Equities | ||||
| Europe ex UK | |
We are neutral. We would need to see more business-friendly policy and deeper capital markets for recent outperformance to continue and to justify a broad overweight. We stay selective, favoring financials, utilities and healthcare. | ||
| Germany | |
We are neutral. Increased spending on defense and infrastructure could boost the corporate sector. But valuations rose significantly in 2025 and 2026 earnings revisions for other countries are outpacing Germany. | ||
| France |  |
We are neutral. Political uncertainty could continue to drag corporate earnings behind peer markets. Yet some major French firms are shielded from domestic weakness, as foreign activity accounts for most of their revenues and operations. | ||
| Italy | |
We are neutral. Valuations are supportive relative to peers. Yet we think the growth and earnings outperformance that characterized 2022-2023 is unlikely to persist as fiscal consolidation continues and the impact of prior stimulus peters out. | ||
| Spain | |
We are overweight. Valuations and earnings growth are supportive relative to peers. Financials, utilities and infrastructure stocks stand to gain from a strong economic backdrop and advancements in AI. High exposure to fast-growing areas like emerging markets is also supportive. | ||
| Netherlands | |
We are neutral. Technology and semiconductors feature heavily in the Dutch stock market, but that’s offset by other sectors seeing less favorable valuations and a weaker earnings outlook than European peers. | ||
| Switzerland | |
We are neutral. Valuations have improved, but the earnings outlook is weaker than other European markets. If global risk appetite stays strong, the index’s tilt to stable, less volatile sectors may weigh on performance. | ||
| UK | |
We are neutral. Valuations remain attractive relative to the U.S., but we see few near-term catalysts to trigger a shift. | ||
| Fixed income | ||||
| Euro area government bonds | |
We are neutral. We agree with market forecasts of ECB policy and think current prices largely reflect increased German bond issuance to finance its fiscal stimulus package. We prefer government bonds outside Germany. | ||
| German bunds | |
We are neutral. Markets have largely priced in fiscal stimulus and bond issuance, and expectations for policy rates align with our view. | ||
| French OATs | |
We are neutral. Political uncertainty, high budget deficits and slow structural reforms could stoke volatility, but current spreads incorporate these risks and we don’t expect a worsening from here. | ||
| Italian BTPs | |
We are neutral. Demand from Italian households is strong at current yield levels. Spreads tightened in line with its sovereign credit upgrade, but a persistently high debt-to-GDP levels means they likely won’t tighten further. | ||
| UK gilts | |
We are neutral. The recent budget aims to shore up market confidence through fiscal consolidation. But deferred borrowing cuts could bring back gilt market volatility. | ||
| Swiss government bonds | |
We are neutral. We don’t think the Swiss National Bank will slash policy rates to below zero, as markets expect. | ||
| European inflation-protected securities | |
We are neutral. Our medium-term inflation expectations align with those implied in current market pricing. | ||
| European investment grade | |
We are neutral. We favor short- to medium-term debt and Europe over the U.S. An intense re-leveraging cycle to support the AI buildout could put upward pressure on U.S. spreads, making Europe relatively more attractive. | ||
| European high yield | |
We are overweight. Spreads hover near historic lows, but credit losses have been limited in this cycle and better economic growth in 2026 could reduce them further. | ||
Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a euro perspective, December 2025. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.
Meet the authors
Jean Boivin
Head – BlackRock Investment Institute
Wei Li
Global Chief Investment Strategist – BlackRock Investment Institute
Glenn Purves
Global Head of Macro – BlackRock Investment Institute
Nicholas Fawcett
Senior Economist – BlackRock Investment Institute
