Cool CPI and Micron Guidance Lift Nasdaq, End S&P Slide
U.S. equities rallied Thursday as investors latched onto a cooler-than-expected inflation print and a renewed burst of optimism around AI-linked chip demand. The S&P 500 snapped a four-day slide, climbing 0.79% to 6,774.76, while the Nasdaq Composite rose 1.38% to 23,006.36. The Dow added 65.88 points (0.14%) to 47,951.85.
The catalyst was the delayed November CPI report, released after the shutdown-related data gap. Headline CPI ran 2.7% year over year versus 3.1% expected, and core CPI printed 2.6% versus 3.0% expected. Traders paired that with another sign of labor market cooling. Initial jobless claims fell to 224,000 for the week ended Dec. 13.
Leadership was narrow but forceful. Chip and mega-cap tech shares led after Micron guided well above consensus, helping rekindle the AI trade. Micron jumped about 10% on the session after strong forward guidance. Meanwhile, the rate backdrop also helped. The 10-year Treasury yield slipped to 4.12%, offering oxygen to duration-sensitive growth stocks.
One wrinkle: economists cautioned the CPI print may be noisier than usual because October CPI was canceled during the shutdown, limiting month-to-month comparisons. BLS noted the report lacked usual datapoints, which raises the odds the market could reverse if December inflation re-accelerates or if revisions land awkwardly.
Position for a market that’s trading inflation direction, not level. If the next inflation and jobs prints validate Thursday’s signal, the rally can broaden beyond AI. If they don’t, leadership concentration and lofty expectations are the risk.
Jobless Claims Fall, but Continuing Claims Signal Labor Strain
Fresh weekly data showed layoffs remain contained even as the broader labor market loses momentum into year-end. The Labor Department reported that initial jobless claims fell by 13,000 to 224,000 for the week ended Dec. 13. That keeps claims in a range consistent with a labor market that’s cooling, not collapsing, even as investors debate whether the U.S. is drifting toward a “low-hire, low-fire” stall.
Under the hood, the picture is less comforting. The four-week average rose to 217,500, and continuing claims climbed to about 1.9 million, suggesting displaced workers may be taking longer to find new roles. This aligns with the soft trend revealed in delayed monthly employment reports earlier this week. Unemployment rose to 4.6% in November, the highest since 2021, with payroll growth just 64,000 after October’s shutdown-distorted decline.
Why it matters now: the Federal Reserve is explicitly watching labor weakness as a reason to ease. Powell flagged the risk of downward revisions to recent job figures, arguing the job market may be weaker than it looks. At the same time, the data stream is unusually messy. Shutdown disruptions have inflated uncertainty around key series, and seasonal volatility in December can exaggerate moves in claims even without a fundamental shift.
Globally, central banks are diverging. Japan’s inflation remains above target. Core inflation held at 3.0% in November, keeping pressure on the Bank of Japan to stay restrictive. In Europe, policy is closer to “wait and see.” The ECB held its deposit rate at 2% and upgraded its growth outlook, signaling fewer cuts ahead.
For readers, the near-term question is whether claims stay near 224,000 and continuing claims plateau, or whether higher unemployment becomes self-reinforcing through weaker hiring. Keep exposure calibrated for uncertainty: the next clean jobs and inflation prints, not this shutdown-tainted batch, will likely set the 2026 policy path.
BOJ Raises Rate to 0.75% as 10-Year JGB Tops 2%
Japan’s central bank delivered a widely anticipated tightening step that still carried market punch. The Bank of Japan raised its policy rate by 25 bps to 0.75%, the highest level since 1995, as inflation remains above its 2% target for years. The move underscores how far Japan has traveled from its long era of ultra-easy policy, even while growth remains fragile.
Immediate market impact was concentrated in rates and FX. The 10-year JGB yield breached 2% for the first time since 2006, while the yen weakened to roughly 155.79 per dollar after the decision. Local equities took it in stride. Nikkei 225 rose 1.21%, helped by global risk-on sentiment after the U.S. CPI surprise.
The “why” is a mix of sticky inflation and a desire for policy normalization without slamming the brakes. Japan’s inflation is still running hot by domestic standards. Consumer inflation stayed above the 2% target for a 44th month, with core inflation at 3.0% in November. Yet the BOJ insists policy remains accommodative. It said real rates will stay “significantly negative”, aiming to preserve a wage-price cycle while acknowledging signs of economic weakness.
The tension is fiscal and growth sensitivity. Japan’s debt burden is enormous. IMF data put debt-to-GDP near 230%, so sustained higher yields raise debt-service anxieties and could tighten financial conditions faster than intended. Meanwhile, the economy has already shown strain. Revised Q3 GDP contracted 0.6% q/q (2.3% annualized), sharpening the risk that “normalization” collides with weak demand.
For readers, Japan is no longer a passive anchor for global yields. If JGB yields keep rising, it can ripple into global bond markets and FX hedging costs, and potentially tighten global financial conditions even as the Fed debates cuts. Watch whether the yen strengthens on rate differentials, or stays weak due to fiscal concerns and policy credibility.
Year-End Signals: CPI, Claims, Yields, AI Capex, Japan Rates
- Verify whether 2.7% headline CPI holds up in December without shutdown-related distortions.
- Track weekly claims. 224,000 initial claims is stable, but rising continuing claims could signal slower re-hiring.
- Watch U.S. 10-year yield levels. 4.12% on the 10-year supported tech. A reversal could pressure growth leadership.
- Monitor AI-capex sentiment. Micron’s guidance-driven rally is a key test of whether AI remains market leadership into 2026.
- Japan rates spillover. JGB yields above 2% could impact global duration and FX hedging costs.
