US stocks closed sharply higher on Friday as a cooler-than-expected inflation report and dovish comments from Federal Reserve officials provided relief to investors. However, all three major indices recorded weekly losses amid lingering economic uncertainties.

Key Economic Indicators

The Personal Consumption Expenditure (PCE) index, a key inflation gauge, rose 2.4% year-on-year in November, slightly below the forecasted 2.5%. Consumer spending also increased, signalling continued economic resilience. The data prompted traders to adjust their expectations for Federal Reserve rate cuts in 2025, now anticipating a first cut in March and a second by October.

Market Performance

The Dow Jones Industrial Average climbed 498.82 points, or 1.18%, to 42,841.06, while the S&P 500 gained 63.82 points, or 1.09%, to 5,930.90. The Nasdaq Composite added 199.83 points, or 1.03%, to close at 19,572.60. Despite Friday's gains, the indices logged weekly declines:

S&P 500: -1.99%

Nasdaq: -1.78%

Dow: -2.25%

The S&P recorded its largest weekly percentage drop in six weeks, while the Nasdaq broke a four-week winning streak.

Sector and Stock Highlights

All 11 major S&P sectors advanced, led by a 1.8% rise in real estate, buoyed by falling Treasury yields. Small-cap stocks, represented by the Russell 2000, gained 0.9%. Advancing issues outpaced decliners by 2.84-to-1 on the NYSE and 2.12-to-1 on the Nasdaq.

Broader Context

The rally also coincided with "triple witching," the simultaneous expiry of stock and index options and futures, boosting trading volumes to 21.58 billion shares—well above the 20-day average of 14.87 billion.

Meanwhile, US lawmakers scrambled to prevent a government shutdown before a midnight deadline. The House of Representatives was set to vote on a stopgap measure to ensure continued federal operations.

Despite Friday's rebound, concerns over fiscal policy uncertainty and inflation continue to loom over markets, leaving traders cautious ahead of the holidays.

Reuters