US Stocks Rally on Falling Treasury Yields

US stocks rallied Friday, supported by declining Treasury yields as cooler-than-expected inflation data eased concerns of a more hawkish Federal Reserve next year.

At 1:22 p.m. ET (18:22 GMT), the Dow Jones Industrial Average rose 673 points, or 1.6%, the S&P 500 index gained 1.5%, and the NASDAQ Composite added 1.4%.

PCE Cooler than Expected

Treasury yields fell after inflation cooled in November, alleviating investor fears of a hawkish Fed.

The widely-watched PCE price index, the Fed’s preferred inflation gauge, rose 2.4% in November year-on-year, compared to estimates of 2.5%. On a monthly basis, it only rose 0.1%.

Excluding volatile food and energy, core PCE rose 2.8%, slightly lower than the 2.9% estimate.

This data calmed concerns, as US consumer prices increased the most in seven months in November, with potential inflationary policies anticipated from the incoming Donald Trump administration.

Morgan Stanley predicts, "[W]e think the 12-month pace of core PCE will resume its downward trend in 1Q25 and, consequently, that the Fed will cut 25bp in March 2025."

FedEx to Spin Off Freight Business

In corporate news, FedEx (NYSE:FDX) stock climbed 0.5% after reporting better-than-expected earnings in the fiscal second quarter and announcing plans to spin off its freight business.

Nike (NYSE:NKE) stock dipped 0.7% after the retailer flagged "severe issues" in its guidance despite strong second-quarter results.

Novo Nordisk A/S (NYSE:NVO) fell over 16% after late-stage studies of its weight-loss drug disappointed.

US Government Shutdown Looms

The threat of a US government shutdown increased after a Republican bill rejected in the House included Donald Trump’s requests for higher spending and a raised debt ceiling, defying bi-partisan efforts.

Government funding is set to expire at midnight on Friday, leading to a partial shutdown that could disrupt operations from border security to travel, especially during the holiday season.

This shutdown adds another layer of uncertainty for Wall Street, already grappling with losses from earlier in the week when the Fed indicated a slower pace of rate cuts in 2025.

*(Peter Nurse, Ambar Warrick contributed to this article.)