NEW YORK — U.S. stock markets experienced a positive turn on Friday, transforming what could have been one of the year’s most challenging weeks into a less severe downturn.
The S&P 500 surged by 1.1%, marking its most robust performance in six weeks and reducing its weekly loss to 2%. The Dow Jones Industrial Average increased by 498 points, or 1.2%, while the Nasdaq composite rose 1%.
Key technology shares, including Nvidia, powered the market’s gains. This upward momentum followed the release of a report indicating that a key inflation index favored by the Federal Reserve was slightly lower than anticipated last month. This news is seen as a hopeful sign after recent data suggested that achieving the Fed’s inflation target of 2% from a peak of over 9% could be challenging.
Concerns about rising inflation were among the factors mentioned by Federal Reserve Chairman Jerome Powell when he hinted this week that the bank might reduce interest rate cuts next year. Such remarks unsettled stock markets already accustomed to expectations of numerous cuts through to 2025, especially after the markets had achieved 57 all-time highs this year based on that assumption. Current predictions suggest traders are now primarily expecting one or two cuts, with some even considering the possibility of no reductions next year, as indicated by data from CME Group.
Brian Jacobsen, chief economist at Annex Wealth Management, observed, “When market sentiment is high, all it takes is a hint of fear to undermine a rally.” Following the better-than-expected inflation data, traders adjusted their outlooks, now believing there is a 16% chance for no cuts in 2025. Lower interest rates typically stimulate economic growth by making borrowing cheaper for consumers and businesses but may also contribute to inflation.
Critics had cautioned that soaring stock prices could be at risk of decline, suggesting the market needed all elements to align perfectly to justify its impressive gains. In addition to diminished expectations for significant rate reductions next year, Wall Street received a stark reality check on Thursday when the House of Representatives overwhelmingly rejected President-elect Donald Trump’s proposal aimed at avoiding a government shutdown, highlighting potential governance issues even with Republicans controlling both chambers of Congress and the presidency.
Since Trump’s election, the U.S. stock market has ceded some of its gains, which were initially fueled by optimism about economic growth and regulatory easing that could enhance corporate profitability. Concerns have grown regarding Trump’s inclination toward tariffs and other policies that could foster higher inflation, escalate government debt, and complicate global trade.
Carl B. Weinberg from High Frequency Economics warned in a client note that the upcoming year poses substantial challenges for the global economy, citing U.S. political uncertainty and potential global trade conflicts. “We do not look forward to these changes,” he added.
On the downside, U.S. Steel’s stock plummeted by 5% after the company forecasted fourth-quarter earnings below prior estimates, with CEO David Burritt indicating that steel prices remain low.
In another notable decline, shares of Danish pharmaceutical company Novo Nordisk dropped by 17.8% following an update on a weight-loss treatment that analysts deemed underwhelming.
Nike’s stock also faced a slight dip of 0.2% despite outperforming profit expectations for the latest quarter; however, analysts believe that the company’s new CEO, Elliott Hill, may implement strategies that could negatively affect short-term results to drive better growth in the long term. This may involve price cuts to clear out older inventory for newer innovations.
Despite these setbacks, the majority of stocks fared well, with around 90% of the S&P 500 experiencing gains. Cruise line stocks soared after Carnival Corporation exceeded profit expectations, with CEO Josh Weinstein stating that demand remains strong and is expected to continue growing into 2025, aided by rising prices. Carnival shares rose by 6.4%, and Norwegian Cruise Line saw a 5.9% increase.
Eli Lilly also gained 1.3% after Novo Nordisk’s announcement, which could potentially benefit Eli Lilly’s obesity treatment, Zepbound.
Summarily, the S&P 500 climbed by 63.77 points, reaching 5,930.85. The Dow Jones Industrial Average rose by 498.02 points to 42,840.26, while the Nasdaq composite increased by 199.83 points to 19,572.60.
In the bond market, Treasury yields declined, with the yield on the 10-year Treasury note falling to 4.52% from 4.57% the previous day.
Elsewhere in the world, stock indexes in Asia and Europe saw modest declines.
