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Fed Rate-Cut Odds Lift US Equity Indexes as Core Inflation, Michigan Price Pressures Outlook Improves

4:47 PM ET 12/05/2025 - MT Newswires

The Nasdaq Composite rose 0.3% to 23,578.13, with the S&P 500 up 0.2% to 6,870.40 and the Dow Jones Industrial Average 0.2% higher at 47,954.99.

The core Price Consumption Expenditures (PCE) price index, the Fed's primary inflation-gauging tool, grew by 2.8% year-over-year in September, from 2.9% in August, according to the Bureau of Economic Analysis' delayed report on Friday. The month-over-month rate increased by 0.2%, as expected, and followed a 0.2% gain in August.

The headline PCE price index rose 0.3% in September, as expected, lifting the year-over-year move to 2.8% from 2.7%. The price index rose 0.3% month-over-month in August.

"I think it [inflation report] really just solidifies what the market's already been pricing in, which is almost certainty of a cut for next week," David Krakauer, vice president of portfolio management at Mercer Advisors, told CNBC. The probability of a quarter percentage point cut on Dec. 10 stood at 87% late Friday, compared with 62% a month ago, according to the CME FedWatch tool.

The University of Michigan's preliminary consumer sentiment index rose to 53.3 in December from 51.0 in November, above expectations for 52.0 in a survey compiled by Bloomberg. Respondents pegged one-year inflation forecast at 4.1%, down from 4.5% in November, while five-year inflation expectations fell to 3.2% from 3.4%.

The inflation outlook in the Michigan survey declined to the lowest since January 2025, "as tariff-related pressure faded somewhat," Jefferies Chief US Economist Thomas Simons said in a note.

Silver futures jumped 2.6% to $58.84. Gold futures fell 0.4% to $4,224.90, giving up intraday gains of as much as 0.6%.

Most US Treasury yields rose, with the two-year yield up 3.1 basis points to 3.56%. The 10-year yield climbed 3.1 basis points to 4.14%, the highest since mid-November.

The yield on 10-year Japanese government bonds, regarded as the country's benchmark long-term interest rate, rose to 1.95% on Friday, the highest since July 2007. Higher Japanese yields mean a narrower spread with US Treasuries, reducing the appeal of yen-funded carry trades that have been soaking up US government debt.

In company news, Netflix (NFLX) has agreed to acquire Warner Bros. Discovery (WBD) for an equity value of $72 billion in a cash-and-stock deal that the companies said would strengthen the entertainment industry. Warner Bros. shares jumped 6.3%, the leader on the Nasdaq. Shares of Netflix slid 2.9%, among the steepest decliners on the index.

Shares of Ulta Beauty (ULTA) surged nearly 13%, the top gainer on the S&P 500, as the beauty retailer reported better-than-expected fiscal Q3 sales.