FX.co ★ U.S. Stocks Show Strong Move To The Upside Following Inflation Data

Following a relatively unchanged session, Friday witnessed a significant upward trajectory in the stock market. Initially displaying some weakness, the major averages rebounded, gaining solid footing in positive territory as trading progressed.

The Dow Jones Industrial Average soared by 498.02 points, representing a 1.2% increase, reaching 42,840.26. This gain added to the modest upward movement seen on Thursday, when the blue-chip index ended a ten-day losing streak. Similarly, the tech-centric Nasdaq surged by 199.83 points, or 1.0%, closing at 19,572.60, while the S&P 500 advanced by 63.77 points, or 1.1%, to settle at 5,930.85.

Despite Friday's robust performance, the week concluded with significant declines across key indices. The Dow dropped 2.3%, the S&P 500 fell by 2.0%, and the Nasdaq decreased by 1.8%.

The market rally was primarily fueled by investor reaction to the Federal Reserve's favored measure of consumer price inflation. The Commerce Department reported that the Personal Consumption Expenditures (PCE) price index ticked up by 0.1% in November, following a 0.2% rise in October, contrary to economists' expectations of a consistent 0.2% increase.

On an annual basis, the PCE price index rose to 2.4% in November from 2.3% in October, which was below the forecasted 2.5% increase. Excluding volatile food and energy costs, the core PCE price index also went up by 0.1% in November, after a 0.3% rise in October, falling short of the anticipated 0.2% increase.

The annual growth rate of the core PCE price index remained steady at 2.8% in November, contrary to the anticipated 2.9% rise. This slower pace of growth seemed to encourage traders to acquire stocks at more attractive valuations, following a mid-week sell-off.

Stocks had plunged on Wednesday when the Federal Reserve signaled fewer interest rate cuts than previously expected for the coming year, amid ongoing concerns about persistent inflation.

In an interview with CNBC's Steve Liesman, Chicago Fed President Austan Goolsbee expressed optimism that the recent firming data might represent a temporary fluctuation rather than a significant change in the economic trajectory.

Concerns about a potential U.S. government shutdown were largely dismissed by traders, likely reflecting confidence that legislators would negotiate a last-minute agreement, as has historically been the norm.

**Sector Analysis**

The banking sector experienced a notable recovery, with the KBW Bank Index rising by 2.0% after closing at its lowest point in over a month during the previous session. Significant gains were also observed in interest rate-sensitive commercial real estate stocks, as evidenced by the 1.8% increase recorded by the Dow Jones U.S. Real Estate Index.

Utilities stocks, which are sensitive to interest rate changes, also recovered, contributing to the 1.5% increase in the Dow Jones Utility Average. Additional strength was seen in gold, brokerage, and semiconductor stocks, which advanced in line with most other major sectors.

**Global Markets**

In international markets, the Asia-Pacific region saw mixed results on Friday. China's Shanghai Composite Index marginally declined by 0.1%, Japan's Nikkei 225 Index dipped by 0.3%, while Australia's S&P/ASX 200 Index fell by 1.2%.

In Europe, stocks rebounded from their lowest points, though they still closed slightly lower. The German DAX Index decreased by 0.4%, and both the French CAC 40 Index and the U.K.'s FTSE 100 Index declined by 0.3%.

In the bond market, treasuries regained strength after sharp declines in the preceding sessions. Consequently, the yield on the benchmark ten-year note, which inversely correlates with price, dropped by 4.6 basis points to 4.524%.

**Outlook**

Looking ahead, next week's trading activity might be quieter due to the Christmas Day holiday on Wednesday. Nonetheless, upcoming reports on durable goods orders and new home sales are expected to draw some investor attention.