US equity indexes surged midday Friday following a selloff before the market opened, as a positive inflation report helped stabilize investor sentiment amidst concerns about a potential partial government shutdown. The S&P 500 soared 1.6% to 5,961.7, with the Nasdaq climbing 1.6% to 19,673.5 and the Dow Jones Industrial Average rising 1.7% to 43,043.2.
All sectors experienced gains intraday, with notable performances from real estate, healthcare, and financials. Futures for the Dow and the Nasdaq had previously plunged more than 250 points each, while the S&P 500 fell by 50 points before regular trading commenced. While there are still serious concerns about a partial government shutdown, the Federal Reserve's favored inflation metrics provided some relief as month-over-month price growth indicated a slowdown.
The CBOE's Volatility Index (VIX), often referred to as the fear gauge, dropped 19% after midday. A proposed bill by House Republicans that aimed to suspend the debt ceiling for two years and fund the government for three months encountered failure late Thursday, suggesting a partial shutdown could occur if the Friday deadline is not met.
Per a research note from D.A. Davidson, the House of Representatives voted against this measure by a margin of 235-to-174, which included 38 Republicans voting against their party's proposal, according to a note from Scotiabank. House Speaker Mike Johnson, who previously negotiated a bipartisan deal that was rejected by President-Elect Donald Trump, stated that he has a plan to prevent a shutdown and anticipates another vote from lawmakers, as reported by CNN. "It's possible a grand bargain is struck, but a more likely scenario may either be a protracted disagreement or a series of temporary funding arrangements," remarked Derek Holt, head of capital market economics at Scotiabank, in the note. The headline personal consumption expenditures price index increased by 0.1% in November, down from a 0.2% rise in October.
Year-over-year, inflation reached 2.4%, a slight increase from 2.3%. The Wall Street consensus had predicted a 0.2% sequential and 2.5% annual growth. The Fed's preferred core measure remained stable at 2.8% annually but fell to 0.1% from the previous 0.3% on a sequential basis. Market expectations were for 2.9% and 0.2% growth respectively. Core PCE growth month-over-month failed to meet the "mid-teens" outlook set forth by Fed Chair Jerome Powell during his Wednesday press conference, as mentioned in a report from economists at Morgan Stanley.
"The PCE inflation print is favorable for our outlook for continued rate cuts in early 2025," commented Chief US Economist Michael Gapen. "The positive signal comes from the slowdown in shelter inflation and is likely to manifest once the temporary surge in automotive prices subsides." The US Dollar index saw a decrease of 0.6% to 107.72 intraday, moving away from its 52-week peak reached on Thursday. Gold prices experienced an increase of 1.4%, landing at $2,643.9 per ounce, with silver also rising by 1.8% to $29.95 per ounce. Most US Treasury yields fell during the day, with the 10-year yield down 6.6 basis points, sitting at 4.52%, and the two-year rate down 1.9 basis points to 4.3%. In corporate news, Nike reported a decline in fiscal Q2 earnings and revenue.
Truist Securities noted that CEO Elliot Hill's expedited turnaround initiatives are placing pressure on the fiscal H2 2025 outlook. Consequently, Nike's stock fell nearly 1%. FedEx’s fiscal Q2 earnings exceeded analyst expectations, although their revenue fell short of forecasts. The parcel delivery company also announced plans to divest its freight operations into a standalone publicly listed entity, resulting in a nearly 1% increase in FedEx shares. West Texas Intermediate crude oil futures rose by 0.3% to $69.58 per barrel, recovering from initial declines..