Stock Market Today: Muted Inflation Data Sparks Relief Rally

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Stocks ignored worries about a potential government shutdown after a key reading on consumer prices showed renewed progress against stubborn areas of inflation. Risk assets bounced on the economic news, getting a push from a relief rally as well.

Equities ended the week on an up note after a devastating selloff sparked by the Federal Reserve's latest outlook for interest rates, inflation and gross domestic product released two sessions ago. The Fed's Summary of Economic Projections reduced the number of cuts forecast for 2025, which sent markets into a tailspin.

"The S&P 500 sold off nearly 3% on Wednesday and we saw 97% of all stocks in the S&P 1500 fall as well," writes Ryan Detrick, chief market strategist at Carson Group. Thursday's action was mostly to the downside too.

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"But let's take a step back and put things in context," Detrick adds. "The S&P 500 is only 3.6% away from the recent highs and it is still up 23% for the year, something that most investors would have gladly taken this time a year ago."

At the same time, markets and individual stocks often make knee-jerk overreactions – to both the downside and upside – market strategists note. It seems a couple of sessions to digest the Fed news and some decent inflation data was all that was needed to get equities going again on Friday.

"This is a relief after Wednesday's painful shock," writes David Russell, global head of market strategy at TradeStation. "The Fed wants to be vigilant on inflation, but it might be less of an issue than feared. 2025 may be a year of gradual improvement, especially with potential for the key shelter component to ease."

Inflation data whets risk appetite

The Federal Open Market Committee's (FOMC) preferred measure of underlying inflation was muted last month, indicating further progress in the central bank's fight against stubbornly rising prices.

The core personal consumption expenditures price index, which excludes volatile food and energy items, rose 0.1% from October and 2.8% year over year, according to Bureau of Economic Analysis.

"The 0.11% increase in the core PCE deflator was the smallest since May and anchored the inflation rate at 2.8%, in line with the FOMC’s new forecast," writes Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. "The muted increase offsets some of the momentum in September and October, leaving the annualized rate of increase in the three months to November, compared to the previous three months, at a subdued 2.6%."

The bottom line is that "disinflation continues, however bumpy, with the potential for another step down in the first quarter of next year," writes David Alcaly, lead macroeconomic strategist at Lazard Asset Management.

At the closing bell, the blue chip Dow Jones Industrial Average added 1.2% to 42,840, while the broader S&P 500 gained 1.1% to 5,930. The tech-heavy Nasdaq Composite rose 1% to 19,572.

Does AVGO make it the Magnificent 8?

Broadcom (AVGO) added more than 5% at one point Friday before closing up 1.1%, thus extending a "stupendous post-earnings rally" that ran from last Friday through today's session, says Interactive Brokers Chief Strategist Steve Sosnick.

"The move was triggered by increased guidance, which in turn was spurred by fresh demand for its AI-related chips," Sosnick adds.

The semiconductor company last week beat earnings expectations for its fiscal 2024 fourth quarter and issued a better-than-expected revenue outlook for its fiscal 2025 first quarter.

The company also hiked its quarterly dividend by 11% to 59 cents per share. Broadcom is one of the best dividend stocks for dependable dividend growth, having increased its annual payout for 14 years straight.

AVGO is now the eighth largest component in the S&P 500, Sosnick notes, and the fourth largest in the Nasdaq-100, or the 100 largest non-financial companies in the Nasdaq Composite

"Thus, it checks the 'megacap,' 'semiconductor,' and 'AI' boxes," the strategist says.

From its pre-earnings release price through the end of today's session, AVGO stock is up by more than a fifth, adding about $220 billion in market capitalization along the way. For context, that's more than the entire market value of Dow Jones stock American Express (AXP), which also happens to be one of Warren Buffett's favorite stocks.

By the way, Tesla (TSLA), the smallest member of the Magnificent 7, has a market cap of $1.4 trillion. AVGO's market value now stands at almost $1.1 trillion.

Of the 43 analysts issuing opinions on Broadcom tracked by S&P Global Market Intelligence, 30 rate it at Strong Buy, eight have it at Buy and five call it a Hold. That gives AVGO a rare consensus recommendation of Strong Buy, making it one of analysts' top S&P 500 stocks.

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Dan Burrows is Kiplinger's senior investing writer, having joined the publication full time in 2016.

A long-time financial journalist, Dan is a veteran of MarketWatch, CBS MoneyWatch, SmartMoney, InvestorPlace, DailyFinance and other tier 1 national publications. He has written for The Wall Street Journal, Bloomberg and Consumer Reports and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among many other outlets. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange.

Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.

In his current role at Kiplinger, Dan writes about markets and macroeconomics.

Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.

Disclosure: Dan does not trade individual stocks or securities. He is eternally long the U.S equity market, primarily through tax-advantaged accounts.