Stocks rallied to close Friday after a pair of lackluster sessions as a weaker-than-expected inflation report and comments from Federal Reserve officials eased concerns about the future of interest rates.
The Dow Jones Industrial Average rose 498 points, or 1.2%, to 42,840.26. The blue-chip index was up more than 800 points early Friday.
The S&P 500 and Nasdaq both rose 1%. All three indexes ended the week lower.
The Nasdaq ended its fourth straight week of gains, and the Dow fell for its third straight week. Together with the S&P 500, these three stocks are down about 2% for the week.
The latest inflation report from the Personal Consumption Expenditure (PCE) index rose an annualized 2.4% in November, slightly below the 2.5% forecast by economists polled by Reuters.
Consumer spending rose in November, another sign of economic resilience.
The data led traders to slightly raise their expectations for a Fed rate cut in 2025, with the first rate cut expected in March and another by October. Before the statistics were released, traders thought there was about a 50% chance of a second rate cut by December 2025.
On Wednesday, the Federal Reserve announced its third interest rate cut this year, with its Summary Economic Outlook (SEP) projecting only two 25-basis point rate cuts in 2025, up from four rate cuts expected in September. Revised downward. Continued economic health and persistent inflation.
The announcement triggered a sharp selloff late Wednesday, and the stock was unable to rebound on Thursday. Despite Friday's gains, each of the three major U.S. indexes was on track for a weekly decline.
Comments from Fed officials have also provided support, and there is a recognition that the outlook is beginning to incorporate uncertainties in fiscal policy, including tariffs.
“It's kind of clear what's going on,” said Jay Hatfield, CEO of Infrastructure Capital Advisors in New York. “This PCE and the dovish Fed comments just offset each other.”
“We've seen this about 10 times this Fed cycle. The market always overreacts on one side or the other.”
All 11 of the S&P's major sectors rose in a broad-based bull market, supported by gains in real estate and lower Treasury yields.
Small-cap stocks as measured by the Russell 2000 were also seen as likely to benefit from lower interest rates, rising 0.9%.
Friday's trading will also coincide with the expiration of quarterly derivatives contracts related to stocks, index options and futures, also known as “triple witching,” which can exacerbate volatility.
Markets will also race to avoid a partial government shutdown by a midnight deadline after more than 30 Republican lawmakers rejected President-elect Donald Trump's request to use measures to raise the debt ceiling. He was also paying close attention to developments in Congress.
