NEW YORK — On Friday, U.S. stocks made a significant rebound, recovering nearly half of their losses from a week that was poised to be one of the market’s most challenging of the year.
The S&P 500 surged by 1.4%, marking one of its strongest sessions since the last Election Day, and managed to reduce its weekly decline to 1.7%. The Dow Jones Industrial Average soared by 602 points, or 1.4%, with approximately 40 minutes left in the trading day, while the Nasdaq composite also increased by 1.4%.
This positive momentum was largely driven by influential tech stocks such as Nvidia, along with other major technology companies. The market received a boost following the release of inflation data that showed a favored metric by the Federal Reserve was slightly lower than what economists had anticipated last month. This development sparked optimism following earlier reports indicating that reducing inflation to the Fed’s target of 2% from a peak of over 9% could prove difficult.
The concerns surrounding potential higher inflation were among the reasons Fed Chair Jerome Powell mentioned this week when he suggested that the central bank might implement fewer interest rate reductions next year than previously thought.
This cautionary statement sent ripples through the stock market, which had been reaching all-time highs based on the prevailing assumption that the Fed would carry out a series of rate cuts in 2025. Presently, traders have adjusted their outlook, predominantly anticipating one or two cuts, or possibly none at all, according to analysis from CME Group.
Brian Jacobsen, the chief economist at Annex Wealth Management, remarked that heightened optimism coupled with rising market multiples can leave the market vulnerable to fear, which is capable of upending a rally quickly.
The better-than-expected inflation figures prompted traders to reduce their expectations for minimal interest rate cuts in 2025, now estimating only a 16.5% likelihood. Lower interest rates can stimulate the economy by making it more affordable for households and businesses to borrow, although they also have the potential to contribute to inflationary pressures.
Doubts had previously been raised regarding stock prices, which appeared susceptible to declines after reaching significant heights, indicating the market may require an ideal scenario to justify the impressive gains achieved throughout the year. In addition to reduced expectations surrounding interest rate cuts, Wall Street received another unwelcome reminder late Thursday when the House of Representatives decisively turned down President-elect Donald Trump’s proposal to maintain the operation of the U.S. government prior to a possible shutdown. The outcome leaves uncertainty about the future course of action, highlighting that governance may face challenges even with Republican control of Congress and the White House.
Following Trump’s Election Day victory, the stock market had experienced considerable losses, driven by expectations of accelerated economic growth and eased regulations benefiting corporate profits. However, concerns have mounted that Trump’s inclination toward tariffs may foster higher inflation, increased U.S. government debt, and complications for international trade.
Analysts from High Frequency Economics also voiced apprehensions regarding the economic landscape for the upcoming year, citing U.S. political unpredictability, anticipated global trade conflicts, and ongoing geopolitical tensions.
In terms of market performance, U.S. Steel experienced a steep decline of 4.9% after announcing that its fourth-quarter results were likely to underperform earlier projections, with CEO David Burritt attributing this to persistently low steel prices.
Novo Nordisk, a Danish firm, saw its U.S.-traded stock plummet by 17% following an update regarding a potential weight-loss treatment that fell short of analyst expectations.
Nike’s stock slipped by 0.1% despite exceeding profit estimates for its latest quarter, as analysts predicted that recent changes made by new CEO Elliott Hill would impact short-term financial results in pursuit of sustainable long-term growth, including steps to discount old products and prepare for new innovations.
Most stocks in the S&P 500 performed well, with 93% posting gains. Eli Lilly’s shares increased by 2.5% in response to Novo Nordisk’s news, as setbacks for its competitor could provide opportunities for Eli Lilly’s obesity treatment, Zepbound.
Cruise lines also saw a rise after Carnival reported profits that exceeded expectations for the latest quarter, with CEO Josh Weinstein pointing to robust demand and anticipating continued growth into 2025, alongside increased ticket prices. Consequently, Carnival’s stock surged by 6.9%, while Norwegian Cruise Line gained 6.6%.
In the bond market, Treasury yields declined, with the 10-year Treasury yield dropping from 4.57% to 4.51%.
Abroad, stock indexes experienced modest declines in much of Asia and Europe.