Fed Rate Hike Odds Near 79% After Jobs Report Jolts AI Stocks

Fed rate hike odds for December jumped on Friday, November 6, after the economy added 165,000 jobs in October, far above forecasts. Traders now see roughly a 77% to 79% chance that the Federal Reserve raises rates again at its December 8 to 9 meeting, up from about 70% to 73% before the report. For AI stocks, which just had their worst week in months, higher rates add a second headwind on top of the post-election data center scare.

Economists polled by Reuters had expected 65,000 jobs, and a Dow Jones survey cited by InvestmentNews had 59,000. The unemployment rate fell to 4.1% from 4.2%, and revisions added a combined 84,000 jobs to August and September.

165,000

October payroll gain

4.1%

Unemployment rate, down from 4.2%

~79%

Odds of a December hike, up from ~73%

4.88%

10-year Treasury yield after the report

A jobs beat that changes the December math

The surprise was not only the headline. Average hourly earnings rose 0.4% in October and 3.1% from a year earlier, above expectations of 0.3% and 2.9%, according to InvestmentNews. Faster wage growth is the part of a jobs report the Fed watches most closely when inflation is already above its 2% target.

The Fed raised rates in September and held its target range at 3.75% to 4% on October 28. After the report, Reuters put the probability of a December increase at 78%, up from 70% earlier in the day. CME FedWatch showed 76.8% for a quarter-point move, InvestmentNews reported, and Investing.com cited nearly 79% later in the session, up from almost 73%. Peter Cardillo, chief market economist at Spartan Capital Securities, told Reuters the data confirm that the Fed has no choice but to raise rates in December.

Yields rose across the curve

Treasury yields moved up after the release. The two-year yield, the most sensitive to Fed expectations, rose about 5 basis points to 4.52%, according to both Reuters and InvestmentNews. The 10-year yield climbed 3 to 4 basis points to about 4.87% to 4.88%, and the 30-year yield sat near 5.29%, Reuters reported.

Higher long-term yields matter more for AI stocks than for most of the market. Much of the value investors assign to chipmakers, cloud providers and AI startups depends on profits expected years from now. When the rate used to discount those profits rises, today's value of those profits falls, and the most richly valued names tend to feel it first. Borrowing costs also rise for the companies financing data centers with debt, a pressure we tracked in CoreWeave Bond Yield Tops 16%.

AI stocks bounced, but the week was still bruising

Stocks held up on Friday despite the rate news, helped by dip buying in chipmakers. The Nasdaq Composite rose 1.1% to 24,579.43 and the S&P 500 gained 0.3% to 7,377.99, while the Dow slipped 0.5%, according to Investing.com. The Philadelphia semiconductor index rose more than 4% after its 12% plunge on Thursday. AMD jumped 11%, Nvidia rose 2.8%, CoreWeave gained 6.3% and IREN surged 20%.

For the week, the Nasdaq still fell 3.4% and the S&P 500 lost 2.7%, Investing.com reported. Yahoo Finance said it was the S&P 500's worst week since June. The selloff was driven by fears that a Democratic Congress could slow data center construction, which we covered in AI Stocks Crash: Chip Index Falls 12%. The Cboe volatility index, Wall Street's fear gauge, ended Friday at 25.64, down 9% on the day but still well above calm-market levels.

What the AI Bubble Index says

The AI Bubble Index read 63.9 after Friday's close, in its Normal band, up from 62.9 a week earlier. The sentiment and attention family remains the hottest part of the reading at 92.5, and the systemic risk family reads 69.9. Fragility, at 69.8, is slightly above Euphoria at 66.5, and the demand gap is the coolest measure at 40.1. A one-week move of one point is small, and the index does not forecast Fed decisions. You can follow each family on the dashboard and see how the readings are built on the methodology page.

Interest rates have shaped tech booms before: our dot-com bubble timeline shows how cheap money in 1998 helped fuel the late stage of that run. Our guide to AI investment risks explains why rates and debt sit near the top of the list for this cycle.