NEW YORK (AP) — U.S. stocks rose to turn what would have been one of the market’s worst weeks of the year into just a pretty bad one. The S&P 500 rallied 1.1% Friday to shave its loss for the week down to 2%. The Dow Jones Industrial Average jumped nearly 500 points, and the Nasdaq composite gained 1%.
A report said a measure of inflation the Federal Reserve likes to use was slightly lower last month than expected. It’s an encouraging signal after the Fed shocked markets Wednesday by saying worries about inflation could keep it from cutting interest rates in 2025 as much as earlier thought.
The threat of higher inflation was one of the reasons Fed Chair Jerome Powell gave this week when the central bank hinted it may deliver fewer cuts to interest rates next year than it earlier expected.
That warning sent a shock through the stock market, which had run to all-time highs amid the widespread assumption the Fed would deliver a string of cuts to rates in 2025. Now traders are largely betting on one, two or perhaps even zero, according to data from CME Group.
"When optimism is rising and market multiples are expanding, it just takes a little fear to take the veneer off a market rally," according to Brian Jacobsen, chief economist at Annex Wealth Management.
Friday's better-than-expected inflation data pushed traders to trim their bets for zero cuts in 2025, which they now collectively see a 16.5% chance of. Easier interest rates can goose the economy by making it cheaper for households and businesses to borrow, but they can also provide fuel for inflation.
Critics had been warning stock prices were vulnerable to drops after running so high and that the market likely needed everything to go correctly to justify its stellar gains for the year. Besides the diminished hopes for several rate cuts next year, Wall Street got another reminder late Thursday that everything may not go as expected.
The House of Representatives resoundingly rejected President-elect Donald Trump's plan to keep the U.S. government fully running ahead of a potential shutdown. It's unclear what the next steps will be, but the failure indicates Washington may not run smoothly even with Republicans in full control of the House, Senate and White House.
The U.S. stock market has lost a chunk of its gain since Trump's win on Election Day raised hopes for faster economic growth and more lax regulations on companies, which would boost corporate profits. Worries have risen that Trump's preference for tariffs and other policies could lead to higher inflation, a bigger U.S. government debt and difficulties for global trade.
"Next year will be a time of huge challenges to the world economy," High Frequency Economics' Carl B. Weinberg wrote in a note to clients, citing U.S. political uncertainty, expected global trade wars and geopolitical uncertainty. "We do not look forward to these changes."
On the losing end of Wall Street was U.S. Steel, which sank 4.9% after saying its fourth-quarter results will likely come in below its earlier forecast. CEO David Burritt said steel prices remain depressed.
Danish company Novo Nordisk saw its stock that trades in the United States tumble 17% after giving an update on a potential weight-loss treatment that analysts said fell short of expectations.
Nike's stock slipped 0.1% despite reporting a better profit for the latest quarter than analysts expected.
Analysts said changes by Nike's new CEO, Elliott Hill, to turn around the company will likely cut into financial results in the near term to drive better long-term growth. The company is likely to cut prices to clear its warehouses of old products, for example, and open space for a new wave of innovation.
They were the exceptions. Nearly every stock in the S&P 500 rose, at 93%.
Eli Lilly climbed 2.5% following Novo Nordisk's update on its potential treatment for adults with obesity. A stumble for its rival could benefit Eli Lilly, whose Zepbound helps treat obesity.
Cruise lines also climbed after Carnival steamed past analysts' expectations for profit in the latest quarter.
CEO Josh Weinstein said it's seeing strong demand and expects growth to continue into 2025 thanks in part to higher fares. Carnival climbed 6.9%, and rivals Norwegian Cruise Line rose 6.6%.
In the bond market, Treasury yields eased. The yield on the 10-year Treasury sank to 4.51% from 4.57% late Thursday.
In stock markets abroad, indexes fell modestly across much of Asia and Europe.
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AP Writers Matt Ott and Zimo Zhong contributed