Stocks Rally as Inflation Data Fuels Fed Cut Bets

Quick overview

Cooling inflation and softer labor-market data strengthened expectations for a rate cut next week—an encouraging combo for Wall Street.

U.S. stocks closed higher on Friday after a relatively favorable inflation report kept alive the possibility that the Federal Reserve could cut interest rates at its meeting next week.

The Dow Jones Industrial Average rose 0.2% to 47,954.99 points, the S&P 500 climbed 0.2% to 6,869.07, and the Nasdaq Composite advanced 0.3% to 23,578.13.

PCE Inflation in the Spotlight

The Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, showed that price pressures remain contained—reinforcing expectations that the central bank could cut rates to support the slowing economy.

Core PCE, which excludes food and energy, cooled to 2.8% year-over-year in September, slightly below the 2.9% forecast, and rose 0.2% month-over-month.

Expectations for a 25-basis-point rate cut at the Fed’s December 9–10 meeting have surged in recent weeks, supported by weaker labor-market data and broader signs of economic cooling.

Weekly jobless claims fell by 27,000 to 191,000—the lowest level since September 2022—though economists warned the Thanksgiving holiday may have distorted the numbers.

Separately, ADP’s private payrolls report showed a drop of 32,000 jobs, the sharpest decline in more than two and a half years.

A report from Challenger, Gray & Christmas indicated that announced job cuts fell sharply in November, but hiring intentions remained weak.

Corporate Highlights

In corporate news, Netflix (-3%) agreed to acquire Warner Bros Discovery (+6.2%) in a cash-and-stock deal valued at $27.75 per share, giving the company an enterprise value of roughly $82.7 billion.

The deal follows weeks of bidding in which Netflix beat Paramount Skydance’s (-9.8%) nearly $24-per-share offer with a proposal closer to $28.

• Ulta Beauty shares surged 67.5% after the cosmetics retailer beat Wall Street’s quarterly estimates and raised full-year guidance.
• Victoria’s Secret jumped 18% after reporting stronger-than-expected third-quarter results, signaling that its restructuring strategy is gaining traction.
• Hewlett Packard Enterprise rose 1.8% despite missing analyst revenue expectations, reporting $9.68 billion versus the $9.94 billion consensus.
• Toro Corp soared 40.4% after announcing a one-time special dividend of $1.75 per share.

Market Expectations: A December Cut and Potential Shifts Ahead

Bank of America analyst Aditya Bhave warned Friday that investors may soon adjust their expectations despite policymakers’ attempts to sound cautious.

In the bank’s latest U.S. weekly economic report, Bhave wrote: “We wouldn’t be surprised if markets begin to price in a rate cut more aggressively in the near term.”

But first, markets expect a well-telegraphed 25-basis-point cut at the December meeting. BofA anticipates three dissenting votes and expects the Fed’s Summary of Economic Projections to show “stronger growth in 2025–26,” with slightly higher unemployment and lower inflation.

Given that backdrop, the bank doubts Fed Chair Jerome Powell will be able to push back convincingly against expectations for further easing.

ABOUT THE AUTHOR See More

Ignacio Teson

Economist and Financial Analyst

Ignacio Teson is an Economist and Financial Analyst. He has more than 7 years of experience in emerging markets. He worked as an analyst and market operator at brokerage firms in Argentina and Spain.

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