This week, the U.S. labor market delivered data that was “almost too good to be true,” and global risk assets responded with a sell-off that was “almost too bad to be true.”
On the surface, this was another replay of “good data kills good stocks.” But if we lay out the week’s events in chronological order, what truly deserves a place in the weekly recap is not the causal chain itself, but the structural problems exposed at every link in that chain: the “room” the Fed has gained between inflation and employment is being repriced in a highly selective way as a “discount-rate cost” for specific asset classes.

I. Nonfarm Payrolls: Two Soft-Landing Assumptions Disproved at Once
Data released by the U.S. Department of Labor on November 6 showed that nonfarm payrolls increased by 165,000 in October, while the Bloomberg consensus forecast was only 70,000, with some institutions forecasting as little as 59,000; figures for August and September were revised up by a combined 84,000. The unemployment rate unexpectedly fell by 0.1 percentage point to 4.1%, even as the labor force participation rate rose 0.1 percentage point to 61.9%.
The wage data deserve even closer attention: monthly hourly wage growth rose 0.1 percentage point to 0.4%, while the three-month annualized rate of monthly growth climbed to 3.9%, both exceeding expectations. Year-over-year hourly wage growth was 3.1%, still below the 3.7% rise in consumer prices, meaning ordinary workers’ real purchasing power continues to erode. But the renewed pickup in monthly momentum is already enough to put the “last mile of inflation” narrative back on the table.
What made this report “strong” was not the absolute number of jobs added in a single month, but that it simultaneously shattered two assumptions underpinning the market’s soft-landing outlook: that the labor market was cooling and wage pressures were easing.
With both assumptions disproved, the cost to the Fed of “waiting” on inflation is rising.

II. The Crash Started With Chips, Then Spread Beyond the U.S.!
Around the time the data were released, U.S. stocks were the first to respond. The Nasdaq fell 5.52% in a single day, retreating about 11.9% from its October 6 record high and officially entering correction territory; the Philadelphia Semiconductor Index plunged 12.25%, its biggest one-day drop since March 2020; Nvidia fell more than 9%, wiping about $447 billion off its market cap in a single day, Tesla dropped more than 10%, and the Magnificent Seven tech stocks lost a combined $1 trillion in market value. This was no ordinary “valuation sell-off.”
The sell-off was concentrated in the most AI-intensive parts of the supply chain—chips, memory, optical communications, and servers. AMD fell more than 17%, Micron more than 17%, SanDisk more than 22%, and Dell nearly 15%.
In other words, the market was not selling “stocks,” but “the promise of future returns on AI capital expenditure.”
The sell-off quickly crossed U.S. borders as well. South Korea’s KOSPI index plunged as much as 8.8% intraday, falling below the psychologically important 5,000-point threshold and triggering a circuit breaker that halted trading for 20 minutes. Samsung Electronics and SK Hynix both fell more than 5%; Japan’s Nikkei 225 plunged 6%, its biggest one-day drop since April 2025, with both the Japanese and South Korean stock markets entering bear-market territory during the same period; and the MSCI Asia-Pacific Index plunged 3.8%. South Korea and Japan happen to be the two markets with the deepest exposure to the global AI hardware supply chain. Their declines were more severe than those in U.S. stocks not because of any new problems in their domestic economies, but because their higher leverage and more concentrated holdings amplified the impact of the same global repricing of AI assets’ discount rates.

III. The Fed: The More “Room” It Has, the Less Support AI Assets Receive
Putting nonfarm payrolls and the stock market together reveals the Fed’s predicament as truly being caught between a rock and a hard place.
San Francisco Fed President Daly made her position unequivocal after the data were released: “My expectation is that we are going to have to tighten policy further.” Her reasoning is worth reading word for word: inflation has been above target for nearly six years, and people feel that “everything else is fine, but we’re not keeping up with inflation,” while a resilient labor market “gives us room to complete this task.”
That same day, New York Fed President Williams said inflation was “too high” and that the Fed must ensure inflation returns to its 2% target in a timely and sustained manner, while also stressing that “now is not the right time to rush into a rate hike” and that more information should be gathered before making a decision.
St. Louis Fed President Musalem, meanwhile, spelled out the feedback relationship between AI and inflation: current high inflation reflects both supply shocks and “demand factors related to AI construction.”
This means the Fed is not facing a simple choice between “raising or cutting rates.”
AI capital expenditure has pushed up some prices at the macro level, while the tightening expectations triggered as a result are, in turn, stripping away the most vulnerable layer of AI asset valuations—the rate-cut option. The more “room” the Fed has to “wait for inflation to fall,” the less support AI assets receive from “falling discount rates”; but if the Fed slows tightening because AI assets are falling, inflation expectations risk becoming unanchored again.
Daly said she is not worried about a stock market decline as long as it is “orderly”; but the line between “orderly” and “disorderly” has never been drawn by the Fed’s statements in advance. It is determined afterward by market leverage and liquidity conditions.

IV. The Market Is No Longer Asking “Will the Fed Hold Back?”
Market pricing of the rate path translated this “caught between a rock and a hard place” predicament into more straightforward terms.
After the nonfarm payrolls report, CME FedWatch showed the probability of a 25-basis-point rate hike in December jumping from about 67% before the data to a range of 72.8% to 80%, while the probability of rates remaining unchanged fell to 20% to 27%; pricing for a cumulative 25-basis-point hike by January 2027 rose to 63.4%, with a 15.1% probability of a cumulative 50-basis-point hike.
It is worth emphasizing that the market is leaning not toward “keeping rates high,” but toward “further tightening.” Before the nonfarm payrolls data were released, worries about AI had at one point led traders to scale back bets on a December hike, based on the logic that slowing AI demand could cool economic growth and ease inflationary pressures. But strong employment data overturned that logic, making rate hikes the main pricing narrative again; expectations for the timing of the next hike even moved forward from June to April.
In other words, the market no longer sees “Will the Fed hold back because stocks are falling?” as a variable worth seriously discussing.
The implicit guarantee that supported high-valuation growth stocks over the past two years—the “Fed put”—is being systematically withdrawn, and this week’s stock market moves were simply a concentrated confirmation of that process.

Conclusion: A Pricing World Without a Put
Looking back on this week, the easiest thing to misread is the idea that “strong nonfarm payrolls → higher rate-hike expectations → falling stocks” is a complete explanation.
A truly complete explanation requires one more step: the significance of strong nonfarm payrolls is not that the economy is doing so well that it “should raise rates,” but that they give the Fed the confidence not to turn around in the face of falling risk assets.
Daly said a resilient labor market “gives us room”; the price of that room is written in the 12% drop in the Philadelphia Semiconductor Index, in South Korea’s KOSPI circuit-breaker record, and in the $1 trillion wiped off the Magnificent Seven’s market value in a single day.
The Fed’s “room” is not free; the bill comes due in the repricing of discount rates for long-dated cash-flow assets. For investors, the most valuable information this week was not “Will rates be raised in December?” but a more fundamental shift in assumptions: if “the Fed will pivot when stocks plunge” is no longer a reliable default assumption, then every asset class must be reassessed in a world “without a put.”

View Original

This page contains third-party content and does not constitute any advice, nor does it represent Gate's endorsement of such views. For details, please see disclaimer.