By Amruta Khandekar and Shristi Achar A
(Reuters) -Wall Street edged higher on Wednesday as further signs of a cooling jobs market reinforced bets that the Federal Reserve could start cutting interest rates early next year, although weakness in energy shares kept a lid on gains.
Providing more evidence of labor market weakness following the drop in job openings on Tuesday, the ADP (NASDAQ:ADP) National Employment report showed private payrolls increased by 103,000 jobs in November, below economists' expectation of 130,000.
The data supported bets of peaking interest rates, which had helped equities rebound from their October lows. The benchmark S&P 500 gained nearly 9% in November, hitting its highest close of the year last week.
"Today is a continuation of the macro trend that the market believes the Fed is done hiking," said Joshua Chastant, senior investment analyst at GuideStone Funds, but added that the markets have been too optimistic about early rate cuts.
"We're not going to fight the Fed when they're saying that they're going to hold rates higher unless something materially changes. We are seeing things start to slow down in the economy... but we're not there yet."
Limiting gains, energy stocks slid 1.1% as oil prices fell by 2%. [O/R]
Megacap stocks were mixed, with Microsoft (NASDAQ:MSFT) and Amazon.com (NASDAQ:AMZN) down about 1% each, while Tesla (NASDAQ:TSLA) outperformed, rising 2.2%.
Traders have nearly fully priced in the probability that the central bank will hold rates steady next week and expect to see rate cuts being delivered as soon as the first quarter of next year.
Bets of a cut of at least 25 basis points in March currently stand at nearly 62%, according to the CME Group's (NASDAQ:CME) FedWatch tool.
However, a slim majority of economists in a Reuters poll said they believe the Fed will hold interest rates at least until July, later than earlier thought.
The main event of the week will be November's non-farm payrolls report, due on Friday, which will give investors more clarity about the state of the labor market and the outlook for interest rates.
At 11:24 a.m. ET, the Dow Jones Industrial Average was up 44.15 points, or 0.12%, at 36,168.71, the S&P 500 was up 3.42 points, or 0.07%, at 4,570.60, and the Nasdaq Composite was up 15.76 points, or 0.11%, at 14,245.67.
Among other stocks, Plug Power fell 2.8%, as Morgan Stanley (NYSE:MS) downgraded the hydrogen fuel cell firm to "underweight" from "equal weight."
Tobacco giants Altria Group (NYSE:MO) and Philip Morris International (NYSE:PM) slipped 2.2% and 1.6%, respectively, after UK peer British American Tobacco (LON:BATS) said it will take a $31.5 billion hit from writing down the value of some U.S. cigarette brands.
Campbell Soup added 6.5% on surpassing quarterly profit expectations, helped by higher prices for its packaged meals and snacks.
Advancing issues outnumbered decliners by a 2.56-to-1 ratio on the NYSE and by a 2.16-to-1 ratio on the Nasdaq.
The S&P index recorded 28 new 52-week highs and no new lows, while the Nasdaq recorded 84 new highs and 56 new lows.