Wall Street’s cautious Christmas cheer: How cool inflation put a floor under stocks
The last full trading week of the year began with nerves and ended with something closer to a sigh of relief. US investors walked into Friday still nursing losses from a choppy December, yet suddenly the mood felt lighter, almost festive, as cooler inflation data gave Wall Street a reason to believe the sell-off might be running out of steam. The question on every trading desk was the same: is this the start of a late “Santa rally”, or just a polite pause before more volatility?
Inflation cools, hopes warm up
The turning point came with the latest US consumer price index reading, which showed inflation rising 2.7% year on year, below economists’ expectations and well under the levels that dominated headlines in recent years. It was not a perfect print, but it was good enough to push bond yields lower and nudge equity futures into the green, especially for growth and tech names.
“Stock investors got two pieces of good news,” said Micron-watchers, pointing to the combination of cooler inflation and strong results from the chipmaker that helped revive confidence in the artificial intelligence theme. Jamie Cox, managing partner at Harris Financial Group, put it more bluntly: “The inflation bump from tariffs is behind us, so the path is now clear for the Fed to lower rates again in January. There is no longer a case for restrictive monetary policy.” For traders who have spent months trying to second-guess the Federal Reserve, that kind of language matters.
By Friday morning, S&P 500 futures were up around 0.2%, with Nasdaq futures rising closer to 0.4%, signalling another session in which tech might outpace the old-economy giants in the Dow. The cash market had already staged a comeback on Thursday, with the S&P 500 climbing about 0.8% and the Nasdaq jumping roughly 1.4%, even if the broader indices still looked set to finish the week slightly lower.
Fragile rally, nervous narrative
Beneath the surface, though, the story felt more fragile than the headline numbers suggested. December is usually kind to equity investors, yet 2025’s version has been marked by heavy rotational selling in the biggest technology names and a nagging fear that Wall Street simply ran too far, too fast, earlier in the year. As one strategist at Morningstar put it, the tone is “cautious, preferring protection and exposure management over broad risk-on buying”. Volatility indices have eased, but demand for downside insurance remains elevated, a quiet reminder that confidence has its limits.
That tension runs straight through the interest-rate debate. Goldman Sachs’ David Mericle still expects the Fed to cut again in December, arguing that the “arguments for a December cut remain intact” even after a slightly more hawkish press conference from Chair Jerome Powell. Meanwhile, CME FedWatch data show traders assigning a high probability to further easing in early 2026, effectively betting that inflation is yesterday’s story and growth risks are tomorrow’s problem. As Scott Helfstein of Global X summed it up, “The numbers this morning helped support the Fed narrative that the risks to the job market were rising faster than the risks to inflation.”
For now, that is enough to keep Wall Street leaning, if only slightly, towards optimism. Futures are nudging higher, bond yields are steady to lower, and the worst of the week’s selling pressure appears to have passed. Yet the market’s Christmas cheer comes with an asterisk: investors are embracing the idea of gentler inflation and friendlier rates, while quietly bracing for the possibility that the next piece of data could rewrite the story all over again.
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.
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The last full trading week of the year began with nerves and ended with something closer to a sigh of relief. US investors walked into Friday still nursing losses from a choppy December, yet suddenly the mood felt lighter, almost festive, as cooler inflation data gave Wall Street a reason to believe the sell-off might be running out of steam. The question on every trading desk was the same: is this the start of a late “Santa rally”, or just a polite pause before more volatility?
Inflation cools, hopes warm up
The turning point came with the latest US consumer price index reading, which showed inflation rising 2.7% year on year, below economists’ expectations and well under the levels that dominated headlines in recent years. It was not a perfect print, but it was good enough to push bond yields lower and nudge equity futures into the green, especially for growth and tech names.
“Stock investors got two pieces of good news,” said Micron-watchers, pointing to the combination of cooler inflation and strong results from the chipmaker that helped revive confidence in the artificial intelligence theme. Jamie Cox, managing partner at Harris Financial Group, put it more bluntly: “The inflation bump from tariffs is behind us, so the path is now clear for the Fed to lower rates again in January. There is no longer a case for restrictive monetary policy.” For traders who have spent months trying to second-guess the Federal Reserve, that kind of language matters.
By Friday morning, S&P 500 futures were up around 0.2%, with Nasdaq futures rising closer to 0.4%, signalling another session in which tech might outpace the old-economy giants in the Dow. The cash market had already staged a comeback on Thursday, with the S&P 500 climbing about 0.8% and the Nasdaq jumping roughly 1.4%, even if the broader indices still looked set to finish the week slightly lower.
Fragile rally, nervous narrative
Beneath the surface, though, the story felt more fragile than the headline numbers suggested. December is usually kind to equity investors, yet 2025’s version has been marked by heavy rotational selling in the biggest technology names and a nagging fear that Wall Street simply ran too far, too fast, earlier in the year. As one strategist at Morningstar put it, the tone is “cautious, preferring protection and exposure management over broad risk-on buying”. Volatility indices have eased, but demand for downside insurance remains elevated, a quiet reminder that confidence has its limits.
That tension runs straight through the interest-rate debate. Goldman Sachs’ David Mericle still expects the Fed to cut again in December, arguing that the “arguments for a December cut remain intact” even after a slightly more hawkish press conference from Chair Jerome Powell. Meanwhile, CME FedWatch data show traders assigning a high probability to further easing in early 2026, effectively betting that inflation is yesterday’s story and growth risks are tomorrow’s problem. As Scott Helfstein of Global X summed it up, “The numbers this morning helped support the Fed narrative that the risks to the job market were rising faster than the risks to inflation.”
For now, that is enough to keep Wall Street leaning, if only slightly, towards optimism. Futures are nudging higher, bond yields are steady to lower, and the worst of the week’s selling pressure appears to have passed. Yet the market’s Christmas cheer comes with an asterisk: investors are embracing the idea of gentler inflation and friendlier rates, while quietly bracing for the possibility that the next piece of data could rewrite the story all over again.
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.
Ready to earn on every trade?
Invest in 11,000+ US stocks & ETFs