NEW YORK — On Friday, U.S. stocks experienced a notable rally, managing to decrease some of the losses from what had been an exceptionally tumultuous week for the market.
The S&P 500 rose by 1.2%, aiming for its strongest performance in six weeks after bouncing back from an earlier decline. The Dow Jones Industrial Average surged by 515 points, also a 1.2% increase by 11:15 a.m. Eastern time, while the Nasdaq composite climbed 1.1%.
A significant contributor to the upward movement was Eli Lilly, whose stock price increased by 4.9% following a less-than-expected update on a competing weight-loss drug from Novo Nordisk. This news was perceived as beneficial for Eli Lilly’s Zepbound, a drug aimed at treating obesity.
However, Nvidia played a central role in pushing the market higher after a report indicated that a key inflation measure favored by the Federal Reserve showed a slight decrease from what economists had anticipated. This was seen as a positive development, considering recent reports indicating that bringing inflation down to the Fed’s target of 2% from a previous peak above 9% may be challenging.
The increasing threat of inflation was one of the reasons Federal Reserve Chair Jerome Powell suggested this week that the central bank might make fewer cuts to interest rates in 2025 compared to earlier forecasts. This notification sent shockwaves through the stock market, which had previously surged to record highs, driven by the assumption that the Fed would implement a series of rate reductions. Now, traders are more inclined to anticipate one or possibly no cuts at all, according to data from CME Group.
As optimism in the market grows and valuations rise, experts warn that even minor fears can undermine market rallies, as noted by Brian Jacobsen, chief economist at Annex Wealth Management.
The recent inflation data, which surpassed expectations, prompted traders to reevaluate their predictions regarding future rate cuts, with market consensus now indicating only a 15% chance of no cuts in 2025.
Skeptics had been cautioning that stock prices could be susceptible to declines after reaching such elevated levels, stating that everything needed to align perfectly for the remarkable gains achieved this year to be justified. In addition to the diminishing hopes for rate reductions next year, Wall Street faced another unsettling reminder late Thursday, when the House of Representatives overwhelmingly rejected a plan from President-elect Donald Trump to keep the government fully operational ahead of a potential shutdown. Uncertainty now looms regarding the next steps, highlighting potential challenges in governance despite Republican control over both the House and Senate, as well as the White House.
The trajectory of the U.S. stock market has reversed much of its gains since Trump’s victory on Election Day, which initially raised expectations for swifter economic growth and relaxed regulations that were thought to enhance corporate profits. Concerns have emerged that Trump’s inclination towards tariffs and other policies might result in increased inflation, heightened U.S. government debt, and complications in international trade.
Carl B. Weinberg from High Frequency Economics expressed in a note to clients that the upcoming year is poised to present substantial challenges for the global economy, citing U.S. political instability, anticipated trade conflicts, and geopolitical uncertainties.
On the downside of Wall Street, U.S. Steel experienced a drop of 3.1% after announcing that its fourth-quarter results are projected to fall short of prior estimates, with CEO David Burritt noting that steel prices remain depressed. Meanwhile, Novo Nordisk’s U.S. stock saw a dramatic decline of approximately 20.6% following an update on its CagriSema treatment for adult obesity.
Nike shares fell by 1.3%, despite exceeding profit expectations for the last quarter. Analysts pointed out that changes being implemented by Nike’s new CEO, Elliott Hill, to revitalize the company could adversely affect financial outcomes in the short term, although they are expected to foster long-term growth. This could include price reductions to clear out existing inventory in preparation for new innovations.
On a positive note, cruise lines flourished after Carnival’s profits exceeded analysts’ forecasts for the recent quarter. CEO Josh Weinstein indicated that the company is experiencing robust demand and anticipates continued growth into 2025, bolstered by increased fare rates. Carnival’s stock climbed 3.7%, matched by a similar rise for competitor Royal Caribbean.
In the bond market, yields on Treasury securities fell, with the yield on the 10-year Treasury decreasing to 4.51% from 4.57% late Thursday. Meanwhile, many stock indexes across Asia and Europe declined.
