The Federal Reserve has set a high bar for skipping a rate cut at the Dec. 18 meeting, but it's not out of the question. With inflation progress stalling recently and the S&P 500 surging, a November jobs report that points to a possible labor market reacceleration might throw a rate cut into doubt.

Wednesday's ADP employment report, the first major read on monthly hiring, showed that private-sector employers added 146,000 jobs in November, below 165,000 estimates, according to Econoday. S&P 500 futures remained slightly higher after the report.

ADP Vs. BLS

ADP's October job gain was revised sharply down to 184,000 from the initially reported 233,000. The three-month trend, which includes September's 159,000 gain, still points to modest improvement after a couple of soft summer months.

However, ADP is viewed as an unreliable predictor of what the official monthly Bureau of Labor Statistics employment report will show. The divergence between the two reports was unusually wide in October, as the BLS employer survey showed a loss of 28,000 private-sector jobs amid the Boeing (BA) strike and the temporary effect of hurricanes.

Jobs Report Expectations

So how strong would Friday's BLS jobs report have to be to give the Fed pause? Given that job gains were negligible in October — as a 40,000 rise in government jobs netted out to a meager 12,000 overall increase — Friday's jobs report would have to show two solid months of job growth packed into one. That would mean something around 300,000 new jobs in November.

However, it's possible we'll get a big revision to October jobs data that makes it look better than first reported. BLS noted that the response rate for the employer survey was "well below average."

Economists expect the November jobs report to show 200,000 new jobs — all of them in the private sector. The unemployment rate, which is based on a survey of households, is seen ticking up to 4.2% from 4.1%. The 12-month gain in average hourly earnings is seen ticking down to 3.9% from 4%.

Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, estimates that hurricanes lowered employment by 51,000 in October, while strikes cost 38,000. If so, the underlying gain still would have only been 101,000, which is likely too little to keep up with growth in the labor force. Such tepid higher, therefore, would mean a rising unemployment rate.

Pantheon expects a 250,000 rebound in job growth for November, but says even that would be "underwhelming" and consistent with a deteriorating labor market trend.

Fed Rate-Cut Outlook

Ahead of Wednesday's ADP report, markets were pricing in 74% odds of a quarter-point rate cut at the Dec. 18 Fed meeting, according to CME Group's FedWatch page. That would lower the Fed's benchmark rate to a range of 4.25% to 4.5%.

Yet even though market confidence in a December rate cut remains high, Wall Street has reined in expectations for further cuts next year. Markets see 60% odds that the Fed will cut rates no more than 50 basis points next year, putting the federal funds rate at a range of 3.75% to 4%.

S&P 500

After the ADP employment report, S&P 500 futures traded up 0.3%. That follows Tuesday's slim 0.05% rise that nudged the S&P 500 to a new record closing high.

The S&P 500 is up 26.8% for the year, including a 4.6% gain since Election Day.

Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.

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