US stock markets concluded the trading week on a positive note, registering modest gains as a batch of key economic indicators reinforced investor confidence that the Federal Reserve is on track to reduce interest rates in its upcoming meeting.
Economic Data Supports Rate Cut Expectations
Market participants, navigating the aftermath of a prolonged government shutdown, are finally receiving delayed economic reports. Data from the Commerce Department revealed that consumer spending, a critical driver of the US economy, increased by 0.3% in September, aligning with analyst forecasts. This followed a revised 0.5% rise in August.
Inflation, as measured by the Personal Consumption Expenditures (PCE) Price Index, also rose 0.3% in September. Over the past 12 months, the PCE index advanced 2.8%, matching expectations. A separate survey from the University of Michigan showed consumer sentiment improved to 53.3 in early December, surpassing forecasts.
This data mix has kept market expectations for a Fed rate cut elevated. According to the CME FedWatch Tool, traders are pricing in an 87.2% probability of a 25-basis-point rate reduction at the December meeting. This marks a significant shift from just two weeks ago when expectations were below 30%, before several Fed officials signalled support for easing policy.
Major Deal and Sector Movements
In corporate news, Warner Bros Discovery shares climbed after streaming giant Netflix agreed to acquire its TV, film studios, and streaming division for a staggering $72 billion. The deal concludes a weeks-long bidding war. Shares of Netflix closed lower, while Paramount Skydance, another bidder, saw its stock tumble.
Sector performance was mixed. The communication services sector led the gains among the 11 major S&P 500 sectors. Conversely, the healthcare index declined after a vaccine advisory panel scrapped a long-standing recommendation for all US children to receive the hepatitis B vaccine at birth.
Market Performance and Outlook
In preliminary closing figures, the S&P 500 rose 11.95 points, or 0.17%, to 6,869.07. The Nasdaq Composite gained 69.81 points, or 0.30%, to 23,574.95. The Dow Jones Industrial Average advanced 93.20 points, or 0.19%, to 47,944.14. All three major indexes posted gains for the second consecutive week.
Market analysts noted that the focus is now squarely on the Federal Reserve's policy decision next Wednesday. "Investors are looking ahead to next week... all eyes will be on the Fed meeting," said Michael Sheldon, vice president at Washington Trust Wealth Management. He added that the key question will be the Fed's guidance on future policy moves beyond the expected cut.
Notably, small-cap stocks, represented by the Russell 2000 index, have rallied strongly in recent weeks, as they are perceived to benefit more from lower borrowing costs. "All the low-quality, unprofitable, highly levered businesses... have been the best performing stocks," observed Jed Ellerbroek of Argent Capital Management, attributing the move to falling interest rate expectations.
In other individual stock moves, Ulta Beauty surged after the retailer raised its annual sales and profit forecasts.
