Stocks ended the trading week higher on Friday after two weak sessions as a weaker-than-expected inflation report and comments from Federal Reserve officials eased concerns about the path of interest rates.
The Dow Jones Industrial Average rose 498 points, or 1.2%, to 42,840.26. Earlier on Friday, the blue-chip index had jumped by more than 800 points.
The S&P 500 and Nasdaq both rose 1%. All three indices ended with weekly losses.
The Nasdaq snapped a four-week losing streak and the Dow fell for the third consecutive week. Along with the S&P 500, all three were down about 2% this week.
The latest inflation report came as the personal consumption expenditure (PCE) index showed a rise of 2.4% in November on an annual basis, just below the 2.5% estimate of economists polled by Reuters.
Consumer spending increased in November in another sign of economic resilience.
Following the data, traders slightly raised their expectations for a Fed rate cut in 2025, with the first cut now expected in March and the second by October. Ahead of the data, traders saw a near 50% chance of a second rate cut by December 2025.
On Wednesday, the Fed announced its third interest rate cut of the year, but this was forecast in the Summary of Economic Projections (SEP) Two 25-basis point cuts for 2025That’s down from its September outlook of four cuts, pointing to the continued poor state of the economy and sticky inflation.
Due to this announcement, sharp selling started late on Wednesday night, due to which the stock market could not rise on Thursday. Even with Friday’s gains, each of the three major U.S. indexes was on track for weekly declines.
Comments from Fed officials were also supportive, with some acknowledging that they were beginning to incorporate fiscal policy uncertainty, such as tariffs, into their outlook.
“It’s clear what’s happening — it’s just PCE plus dovish Fed commentary offset the market reaction to the huge cut that everyone was expecting,” said Jay Hatfield, CEO of Infrastructure Capital Advisors in New York.
“We have seen this happen 10 times during this Fed cycle. “The market always overreacts to one side or the other.”
Each of the 11 major S&P sectors led the broad-based rally as gains in real estate and declines in Treasury yields led the way.
Small-cap stocks as measured by the Russell 2000, which are also seen as likely to benefit from lower interest rates, rose 0.9%.
Friday’s session also marks the simultaneous expiration of quarterly derivatives contracts linked to stocks, index options and futures, also known as “triple witching”, which could increase volatility.
Markets were also keeping an eye on Congress as it struggled to avert a partial government shutdown before a midnight deadline, as more than three dozen Republicans voted against President-elect Donald Trump’s push to lift the nation’s debt ceiling. The demand to use the remedy was rejected.
