US stocks experienced a positive shift on Friday as traders reacted to a softer inflation reading from the Federal Reserve’s preferred gauge, raising expectations for a potential rate cut. The S&P 500 index climbed 0.3%, coming close to marking its first record close since October. Similarly, the Nasdaq Composite also saw a rise of about 0.3%, aiming for its ninth positive closing session out of the last ten. The Dow Jones Industrial Average increased by approximately 0.2%, following a mixed performance in the previous trading session.
Investor sentiment remains heavily focused on the prospect of a quarter-point interest rate reduction from the Federal Reserve in its upcoming meeting next Wednesday. Current estimates suggest an 87% probability of this move, a notable rise from 62% just a month ago, according to data from CME FedWatch.
Contributing to this optimism, the delayed PCE price index revealed that inflation had risen in September at about the expected rate. The “core” PCE index—the Fed’s favored measure—dipped slightly, increasing by 2.8% year-over-year. In a positive development, US consumer confidence registered an increase for the first time in five months as inflation expectations improved among respondents.
However, labor market data has brought mixed signals this week. A report by Challenger indicated that US companies eliminated 71,000 jobs last month, marking the worst November for job cuts since 2022. On the other hand, new weekly jobless claims fell to their lowest level since September 2022, suggesting a gradual cooling of the labor market rather than a sharp decline.
In corporate news, Netflix announced it will acquire Warner Bros. Discovery’s studios and streaming unit for $72 billion, ending a competitive bidding war. Following the announcement, Netflix’s stock experienced a minor decline, while shares of Warner Bros. Discovery rose by 2%.
In earnings reports, Hewlett Packard Enterprise saw a slight increase in its stock price after its quarterly sales outlook fell short of heightened AI expectations.
In a notable turn of events, Tesla’s stock dropped modestly after unveiling more affordable versions of its Model 3 and Model Y vehicles in Europe, an effort to address declining sales in that market.
Meanwhile, Bitcoin faced a drop of over 4%, falling below $90,000 as it struggled to maintain levels above $92,000. Despite this downturn, some market analysts hold onto optimism for a potential year-end rally, especially in light of the anticipated Fed rate cuts.
Nvidia shares slipped nearly 1% as its Chinese business faced heightened challenges due to competition and geopolitical tensions. Legislative changes proposed by US lawmakers could further constrain Nvidia’s ability to export AI chips to China, adding another layer of uncertainty to its operations in the region.
On the economic front, Friday’s PCE price index showed inflation holding steady, with personal income rising by 0.4% and spending increasing by 0.3% in September. This data release was significant, particularly because it was the first due to the recent government shutdown.
Additionally, the University of Michigan reported an unexpected lift in consumer sentiment as inflation expectations decreased. The Index of Consumer Sentiment recorded a reading of 53.3 in early December, surpassing expectations and illustrating a slight improvement from the previous month.
Market sentiment heading into next week will likely hinge on the Federal Reserve’s decisions regarding interest rates, with potential implications for both the stock market and broader economic climate.
