Stocks closed higher on Wednesday as the latest jobs data from ADP led investors to increase their bets that the Federal Reserve will cut interest rates next week.

The Dow Jones Industrial Average gained 408.44 points, or 0.86%, to finish at 47,882.90. The S&P 500 traded up 0.3% to end the day at 6,849.72, while the Nasdaq Composite added 0.17% to settle at 23,454.09.

Payrolls processor ADP reported that private payrolls surprisingly declined by 32,000 in November. Economists polled by Dow Jones had expected an increase of 40,000 for the month. Despite the tough reading, traders were likely betting that the private job losses will lead the Fed to slash rates at its last meeting of the year next week.

"The labor market, that's what people are going to focus on," Scott Welch, Certuity's chief investment officer, said in an interview with CNBC. "The numbers will come in as they come in, and it'll either lead toward a cut or not, but I suspect that there's no question there will be a cut next week."

Markets are pricing in an 89% chance of a cut next Wednesday, which is much higher than the odds from mid-November, according to the CME FedWatch tool. Investors anticipate that a lower rate environment will spur loan growth and give a jolt to the U.S. economy, which led shares of key financial stocks like Wells Fargo and American Express higher Wednesday.

"The market is hinged on on the Fed, and so if they don't cut, it's not going to turn out well," Welch added.

To be sure, Wednesday saw some evidence of a stable economy, as the latest U.S. services data came slightly better than expected.

Microsoft stumbles

Microsoft shares were a sore spot during the session, falling more than 1% after The Information reported it was cutting software sales quotas tied to artificial intelligence. The stock came off its lows of the day after the company denied that they had lowered sales quotas for salespeople.

Other names linked to the AI trade, including chipmakers Nvidia and Broadcom, fell in sympathy with Microsoft. Micron Technology was similarly under pressure, dropping more than 2%.

"The market is starting to separate the winners from the losers," Welch also said. "They're all investing in each other, and the market hasn't seen the results yet."

"We're in the very beginning of a transformational market, and one of the things that we're paying attention to is how much debt these folks are taking on to finance their data centers and so forth," he continued.

The trading day had a few winners, however. Bitcoin continued to gain, trading above $92,000, after the flagship cryptocurrency logged its worst day since March on Monday. Shares of Marvell Technology rose more than 7%, as Wall Street reacted to its data center growth projections. American Eagle Outfitters was another standout, rallying more than 14% after it became the latest retailer to lift its full-year forecast. The apparel company said the holiday shopping season was off to strong start.