US Stock Markets Rally Following Federal Reserve Interest Rate Shock

US stocks mounted an impressive comeback on Friday, reversing course from a significant sell-off triggered by the Federal Reserve’s hawkish stance earlier in the week. The S&P 500 demonstrated remarkable resilience, closing 1.1 per cent higher after overcoming early trading losses.

The market’s recovery was fuelled by lower-than-anticipated inflation figures, with the Fed’s preferred measure of price pressures registering at 2.4 per cent for November. This data helped soothe investor concerns following Wednesday’s Fed announcement, which had indicated fewer interest rate cuts for the coming year.

Despite the recent volatility, the S&P 500 maintains an impressive 24 per cent gain for the year, though it remains below the early December peaks that had positioned Wall Street for its strongest performance in five years. Barclays strategist Emmanuel Cau characterised the mid-week decline as a “reality check” after a period of enthusiastic buying in speculative stocks and digital assets.

Treasury yields responded positively to the inflation data, with the ten-year yield declining 0.05 percentage points to 4.51 per cent. Internal Fed discussions revealed divergent views, with Cleveland Fed president Beth Hammack advocating for sustained rates until clearer evidence of inflation control emerges, while New York Fed president John Williams supported further cuts.

European markets failed to mirror the US recovery, as the Stoxx Europe 600 closed down 0.9 per cent. The index was particularly affected by Novo Nordisk’s more than 20 per cent decline following disappointing obesity drug trial results. Adding to European market pressures, Donald Trump’s social media announcement warning the EU about potential tariffs unless substantial US oil and gas commitments were made created additional uncertainty for investors.

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