U.S. stocks rallied on Thursday, reversing earlier trends as investors reacted to favorable inflation data and strong earnings from the semiconductor sector. By the close of trading, the S&P 500 had risen 0.78% to 6,773.91, the Nasdaq Composite gained 1.37% to reach 23,004.92, and the Dow Jones Industrial Average saw a modest increase of 0.14%, settling at 47,955.33. This shift ended a brief losing streak and arrived during a pivotal moment for the market, as investors ponder the potential for a December “Santa rally” amidst ongoing concerns regarding artificial intelligence (AI) investment, market valuations, and the trajectory of Federal Reserve rate cuts.
The day’s standout economic report was an unusual inflation release that offered mixed signals. The Consumer Price Index (CPI) showed a year-over-year increase of 2.7% for November, below the consensus forecast of 3.1%. Core CPI, which excludes food and energy costs, was reported at 2.6%. However, a recent 43-day government shutdown had affected data collection, meaning the month-to-month CPI changes were not published, leaving investors with only a partial view of inflation trends.
Despite this ambiguity, markets largely interpreted the results as favorable. Bond yields experienced a decline, reigniting conversations about potential rate cuts, while equities made gains, particularly in interest-sensitive sectors and technology companies with long-term growth trajectories. The updated inflation figures led many traders to adjust their expectations of the Federal Reserve’s monetary policy, with futures pricing indicating a 58% likelihood of a dovish policy shift by March.
This favorable backdrop was reflected in bond markets as well, where the 10-year Treasury yield decreased to approximately 4.11%. This development is seen as a supportive factor for growth stocks, as lower yields reduce the discount rate applied to future earnings. Additionally, political dynamics played a role; President Donald Trump has consistently advocated for lower interest rates and suggested that future Fed leadership should prioritize significant reductions, piquing investor interest.
In particular, semiconductor stocks led the market recovery, fueled by Micron’s impressive earnings forecast, which underscored sustained demand linked to AI infrastructure. This positive announcement helped stabilize sentiment around other key AI-focused companies, following a period of heightened anxiety regarding capital expenditures and monetization within the AI sector.
Consumer discretionary stocks also saw movement, with Lululemon benefiting from news that activist investor Elliott Management had acquired a stake exceeding $1 billion. Other companies, such as Starbucks, supported this sector’s overall performance. Meanwhile, stocks associated with cannabis surged following Trump’s executive order aimed at reclassifying marijuana at the federal level, marking a significant regulatory shift since 1970.
In terms of consumer spending and earnings results, companies like Cintas and Darden Restaurants reported strong financial performances, while CarMax faced setbacks due to concerns about future profitability, illustrating the selective nature of market reactions to consumer-related stories.
Globally, while the U.S. inflation figures captured much of the market’s attention, international monetary policy developments also influenced sentiment. The Bank of England announced a rate cut, signaling limited capacity for further easing, while the European Central Bank decided to maintain rates, projecting a more optimistic economic outlook. This created a mixed environment for currencies but contributed to an overall positive trajectory for global equities.
In commodities, oil prices edged higher due to concerns about supply risks, while gold prices softened despite the favorable inflation report.
Investors now turn their focus toward FedEx, which is set to release its earnings after the market’s close. Historical data suggests FedEx’s results can provide insights into industrial demand and the health of shipping related to U.S. consumption—parameters that remain crucial, especially in light of the day’s inflation and technology-driven trends.
Looking ahead, strategists express optimism for 2026, anticipating continued growth and earnings expansion driven by AI-related capital expenditures. Major financial institutions are forecasting the S&P 500 could reach 7,700 by the end of 2026, with projections indicating significant earnings growth in the years to come.
In summary, while Thursday’s market performance showcased a rebound led by technology and supportive interest rate dynamics, the sustainability of this rally hinges on future inflation data clarity, the potential broadening of tech leadership, and the ongoing examination of earnings resilience. As broader market conditions develop, investors remain vigilant for signals suggesting whether the current trends will lead to a more stable growth trajectory or a volatile reset.
