The Dow Jones Industrial Average and the S&P 500 recorded their best performance since last month’s notable postelection rally, capping off an otherwise challenging week for the stock market with a strong finish.
On Friday, the Dow rose by 498 points, or 1.2%, following a narrow recovery from a 10-session losing streak the day prior. The S&P 500 gained 1.1%, and the tech-centric Nasdaq Composite increased by 1%. Despite this rebound, all three major U.S. indexes ended the week with losses of at least 1.8%. The downturn stemmed largely from Wednesday’s selloff, triggered by the Federal Reserve signaling that interest rates might remain elevated throughout 2025, contrary to investor expectations. The Dow fell 2.3% over the week, marking its third consecutive weekly decline. Early Friday, the market appeared poised for steeper losses.
A confluence of factors weighed on market sentiment earlier in the week. Concerns loomed over a potential U.S. government shutdown, rising bond yields in the wake of the Fed’s meeting made investors reconsider valuations of pricey stocks, and tariff threats from President-elect Donald Trump against Europe dragged down international equities.
Additionally, Novo Nordisk saw its shares plummet by 20.7% after disappointing trial results, while Nike, a Dow component, warned of lower sales and shrinking margins for the current fiscal quarter.
Amid this backdrop, a key piece of economic data offered a glimmer of hope. The Federal Reserve’s preferred inflation gauge, the personal-consumption expenditures (PCE) price index, showed prices increasing by just 0.1% in November—lower than the 0.2% economists had anticipated. This report provided traders with a reason to buy, sparking a sharp rebound after stocks opened lower.
“The market was already trading on the edge of a knife, so the smallest thing can have such an outsized reaction,” remarked David Volpe, president and deputy chief-investment officer at Emerald Advisers. Adding to the market’s recovery, interviews with two Federal Reserve officials on Friday fueled optimism that the central bank intends to continue reducing interest rates in 2025, albeit at a slower pace than previously expected. Furthermore, the expiration of more than $6 trillion in options on Friday contributed to heightened trading activity.
Friday’s rally was broad-based, with all 11 sectors of the S&P 500 finishing higher. The best-performing segments included real estate and banking, both of which are particularly sensitive to interest-rate changes. The bond market also experienced a pullback in yields, with the 10-year Treasury yield settling at 4.522%, down from 4.569% on Thursday after climbing earlier in the week.
Greg Wilensky, head of U.S. fixed income at Janus Henderson Investors, noted that while the PCE data wasn’t low enough to justify an immediate rate cut in January, it supported the possibility of more reductions in 2025 than the market had priced in. This helped improve investor sentiment heading into the weekend.
Bitcoin also exhibited volatility on Friday. After hitting a record high of over $108,000 earlier in the week, the cryptocurrency dropped below $93,000 in early trading before rebounding to close at $96,377.74. This recovery bolstered the stocks of companies linked to digital assets, such as Coinbase, MicroStrategy, and Robinhood.
International markets, however, were less optimistic. The Stoxx Europe 600 index declined 0.9% after President-elect Trump threatened tariffs on the European Union if it failed to increase its purchases of U.S. oil and natural gas. Asian markets also saw losses, with Japan’s Nikkei 225 falling 0.3% and South Korea’s KOSPI Composite dropping 1.3%.
In the commodities market, U.S. natural gas futures reached a new 2024 high. January futures rose 4.6%, closing at $3.748 per million British thermal units—the highest price since last January. This surge in prices was driven by an increase in demand for heating and power generation as wintry weather arrived in the Eastern U.S. Natural gas is now approximately 44% more expensive than it was a year ago.
While the week ended on a positive note, the broader picture remained one of cautious optimism. Rising yields, geopolitical tensions, and disappointing corporate news weighed heavily on markets throughout the week. However, Friday’s rally demonstrated the market’s capacity for resilience, with investors responding positively to even modestly encouraging economic data. Looking ahead, the interplay between Federal Reserve policy, inflation trends, and global economic developments will likely continue to shape the trajectory of equities.
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