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The US stock market experienced a significant rally on Friday, December 15, 2024, rebounding from losses earlier in the week fueled by concerns over a hawkish Federal Reserve. Positive inflation data and dovish commentary from Federal Reserve Bank of Chicago President Austan Goolsbee spurred investor optimism, leading to a broad market surge.
Inflation Cools, Bond Yields Drop, and Goolsbee Signals Rate Cuts
All three major US indices closed in positive territory. The Dow Jones Industrial Average climbed nearly 500 points, the S&P 500 rose over 1%, and the Nasdaq Composite also saw gains exceeding 1%.
The market initially opened lower but reversed course after Goolsbee’s comments on CNBC. He expressed anticipation of a “fair bit” of interest rate decline over the next 12-18 months. This outlook, coupled with encouraging inflation figures, significantly boosted market sentiment.
The November PCE index, the Federal Reserve’s preferred inflation gauge, registered a 0.1% month-over-month increase, below the 0.2% predicted by economists. The year-over-year increase was 2.4%, also lower than the anticipated 2.5%. These figures reinforced Goolsbee’s optimism about the inflation trajectory. He stated that while it’s crucial not to overreact to a single month’s data, he’s hopeful that the recent moderation in inflation suggests a return to the disinflationary path rather than a sustained uptick.
A decline in bond yields further bolstered stocks, with the 10-year Treasury yield retreating four basis points to 4.528%. This decline suggests increasing investor confidence in a less aggressive monetary policy from the Federal Reserve.
Government Shutdown Concerns and Triple Witching Add to Market Volatility
Beyond the positive economic news, concerns regarding a potential government shutdown and the quarterly “triple witching” event in the options market added to market volatility.
Congress faced a Friday midnight deadline to pass a funding bill and avert a shutdown. Earlier attempts at a stopgap bill failed, leading to uncertainty and market jitters. House Speaker Mike Johnson subsequently proposed a new short-term funding plan, focused on keeping the government operational and providing disaster relief.
The “triple witching” event, where stock options, stock index futures, and stock index options contracts simultaneously expire, also influenced market dynamics. With approximately $6.5 trillion in options contracts tied to stocks and ETFs set to expire, trading activity and potential market fluctuations were amplified.
Market Closes on a High Note Despite Lingering Uncertainties
Despite the lingering uncertainties surrounding the government shutdown and the significant options expiration, the US stock market closed Friday on a positive note. The confluence of favorable inflation data, dovish Fed commentary, and falling bond yields provided a strong tailwind for equities, outweighing the potential headwinds.
Closing bell figures for major US indices:
- S&P 500: 5,930.85, up 1.09%
- Dow Jones Industrial Average: 42,840.26, up 1.18% (+498.02 points)
- Nasdaq Composite: 19,572.60, up 1.03%
The market’s positive response to cooling inflation and the prospect of future rate cuts highlights the sensitivity of investor sentiment to economic data and Federal Reserve policy signals. While challenges remain, Friday’s rally signals a renewed sense of optimism among investors.
