NEW YORK: Wall Street’s main indexes jumped in volatile trading on Friday as a cooler-than-expected inflation report eased some market concerns triggered by the Federal Reserve forecasting only two rate reductions for 2025.
Treasury yields also retreated from an over 6-1/2 high hit in the previous session, helping US stocks stage a turnaround after a weak start to the trading session.
Latest data showed the Personal Consumption Expenditure (PCE) index rose 2.4% in November on an annual basis, below estimates of 2.5%, according to economists polled by Reuters.
“The Fed’s preferred inflation gauge came in lower than expected, which may take some of the sting out of the market’s disappointment with the Fed’s interest rate announcement on Wednesday,” said Chris Larkin, managing director of Trading and Investing at E*TRADE from Morgan Stanley.
“Longer term, the Fed is still facing policy uncertainty from the incoming White House administration, so the odds still favor a pause on rate cuts in January.” After the data, traders raised their rate cut bets for 2025, now expecting the first one in March and then again by October. Before the data, traders saw an about 50% chance of a second rate cut by December 2025.
The US central bank this week delivered its third interest-rate cut of the year but projected just two quarter-point reductions for 2025, down from its forecast in September of four cuts, in a nod to the economy’s continued resilience and still-high inflation.
The Fed’s hawkish shift has put the Nasdaq on track to fall for the first time in five weeks, with the S&P 500 on pace for its worst week in nearly six. The Dow was on track for its third weekly fall.
“We are going to see a choppy, sideways grind higher next year (with) a 10% to 20% pullback at some point along the way,” said Will McGough, director of investments at Prime Capital Financial.
Friday’s session also marks the simultaneous expiry of quarterly derivatives contracts tied to stocks, index options and futures, also known as “triple witching”, which could exacerbate volatility.
At 11:18 a.m. ET, the Dow Jones Industrial Average rose 582.51 points, or 1.38%, to 42,924.75, the S&P 500 gained 77.16 points, or 1.31%, to 5,944.24 and the Nasdaq Composite gained 252.31 points, or 1.30%, to 19,625.08.
Among sectors, healthcare led gains with Eli Lilly advancing 5% after Danish rival Novo Nordisk’s experimental next-generation obesity drug achieved lower-than-expected weight loss in a late-stage trial.
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