Investors received an early holiday gift Thursday as inflation came in well below expectations, boosting stocks and reviving optimism that the Federal Reserve may have more room to cut interest rates.
The consumer price index rose 2.7% year over year in November, significantly under economists’ 3.1% forecast. Core inflation, which excludes food and energy, increased 2.6%, also below expectations.
Inflation
Markets React Positively
Stocks rallied on the softer inflation data:
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$NASDAQ(.IXIC)$ : +1.4% $NVIDIA(NVDA)$ $Palantir Technologies Inc.(PLTR)$ $Micron Technology(MU)$
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S&P 500: +0.8%
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Dow Jones Industrial Average: +66 points (+0.1%)
Rate-sensitive technology stocks led gains, as lower inflation strengthens the case for easier monetary policy. According to the CME FedWatch tool, the probability of a January rate cut has climbed to more than 25%.
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Hot Stock: Micron Technology +10.2%
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Biggest Loser: $FactSet Research(FDS)$ –7.7%
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Best Sector: Consumer Discretionary +1.8%
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Worst Sector: Energy –1.4%
What Drove the Inflation Surprise
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Shelter costs showed weaker price growth, easing pressure on overall inflation.
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However, economists caution that services inflation remains sticky, largely due to elevated wage growth.
Fed Outlook: Encouraging but No Green Light Yet
While the CPI report supports a more dovish outlook, economists warn against overinterpreting a single data point, especially one distorted by data-collection challenges in October and November.
Still, the report gives the Fed “breathing room” as it balances slowing economic growth against persistent inflation risks.
What’s Next
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Earnings from Carnival, Conagra Brands, Lamb Weston, and Paychex
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Bank of Japan policy decision, with a widely expected rate hike to 0.75%
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U.S. existing-home sales data for November
Bottom Line
A cooler-than-expected CPI boosted markets and reignited hopes for further rate cuts, but economists urge caution. With services inflation still elevated and recent data distorted by the government shutdown, the Fed is likely to wait for clearer signals before making its next move…
[Salute][ShakeHands]
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This summary is for informational purposes only and does not constitute financial advice. Investors should conduct their own research before making investment decisions.
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