Europe’s Record Run, Fed Cut Bets Intensify

European equities finished the week at record levels, capping a year in which falling rates and sector rotation away from pricey U.S. tech helped the region outperform. The pan-European STOXX 600 rose 0.4% on Friday to about 588 points, logging a weekly gain of 1.7% as major markets in Germany and the U.K. also advanced.

Gains were concentrated in sectors that benefit from higher-for-longer rates and geopolitical risk. Aerospace and defence names led the move, while European banks, including Standard Chartered, Barclays and HSBC, added between 0.9% and 1.4%, extending a sector rally of roughly 65% year to date as lenders enjoy steep yield curves and excess capital positions, according to European market data.

Consumer-facing names told a different story. Sportswear groups Puma and Adidas fell between 1.2% and 3.5% after U.S. peer Nike slid 10% on weak China sales and lingering Trump-era tariffs, rattling sentiment across the athletic retail complex, as detailed in Nike-linked trading. Carnival’s London-listed stock was the outlier on the upside, jumping 16.6% on an upbeat profit outlook and a reinstated dividend.

Under the surface, central bank expectations still anchor moves. In recent sessions, equities rebounded from tech-led losses after an unexpected U.S. inflation slowdown reinforced bets on more Federal Reserve rate cuts, while the European Central Bank held policy steady but upgraded its growth forecasts. The Bank of England trimmed its key rate to 3.75%, underscoring a cautious easing bias as inflation cools.

For portfolios, the message is to lean into what the tape is already rewarding: quality financials and defence contractors over highly valued consumer and AI stories, while staying alert to policy surprises that could quickly rotate leadership again.

U.S. consumers remain deeply wary even as price pressures ebb. A December reading from the University of Michigan showed consumer sentiment around the low 50s, barely above historic troughs and far below the roughly 74 level seen a year earlier, according to survey figures. Respondents cited high prices and anxiety about long-run inflation, signaling weak enthusiasm for big-ticket spending.

Markets, however, treated the “dull” numbers as good news. Commentators on business networks noted that softer sentiment supports the case for more Federal Reserve rate cuts, since lackluster demand should restrain future inflation, as highlighted in broadcast reactions. Investors often see this kind of economic weakness as a catalyst for easier policy, even if it flags risk to future growth.

The data landed alongside a separate inflation surprise. U.S. consumer prices in November rose just 2.7% year over year, well below forecasts of 3.1% and a clear step closer to the Fed’s 2 percent target, according to recent inflation prints. The combination of cooler prices and subdued confidence paints a picture of an economy that is slowing, but not yet stalling.

Key figures to keep in view now are upcoming readings on retail sales, credit card delinquencies and wage growth, which will show whether low sentiment is translating into actual cutbacks in spending and borrowing behavior over the next few quarters.

Households and investors alike should treat this moment as a window to repair balance sheets and lock in still-elevated yields before the Fed’s next moves compress both borrowing costs and income opportunities.

The Trump administration’s narrative on the economy is diverging sharply from measurable outcomes, especially on drug prices. President Trump has repeatedly claimed to have cut prescription costs by “400%, 500%, and even 600%,” multiplying earlier boasts of reductions of up to 1,500%, as compiled in recent coverage. On Fox News, host John Roberts pressed Commerce Secretary Howard Lutnick on the mathematical impossibility of those figures, sparking an awkward defense that leaned on creative percentages rather than hard savings.

Behind the rhetoric, the policy record is mixed at best. A Trump executive order in May set a 30-day deadline for drugmakers to negotiate lower prices, threatening to peg U.S. prices to cheaper foreign benchmarks if talks failed. Yet there has been little visible impact on out-of-pocket costs, while a Senate HELP Committee report cited in congressional analysis found increases on roughly 700 medications during Trump’s second term.

The most tangible downward pressure is still coming from prior legislation. Medicare has begun negotiating prices for 15 high-cost Part D drugs under the Inflation Reduction Act of 2022, but those reductions for blockbusters like Ozempic and Wegovy are not expected until 2027, according to program details summarized by the Commonwealth Fund. In the meantime, U.S. patients continue to pay some of the highest prices in the developed world because the country lacks a single national buyer and allows longer, broader patent monopolies.

For households planning medical budgets, this episode is a reminder to look past headline claims and track concrete changes in formularies, copay caps and Medicare negotiation lists, which will determine your actual pharmacy bill far more than any White House talking point.

• Track U.S. inflation and consumer data for confirmation that November’s 2.7% CPI print marks a sustainable downtrend.
• Watch how many Fed rate cuts futures price in after softer data; a shift could quickly reprice growth versus value stocks.
• Follow France’s contentious 2026 budget talks, where failure to agree could force emergency spending measures and unsettle European bond markets, per French political coverage.
• Monitor implementation of the EU’s €90 billion Ukraine aid package and any follow-on decisions about using frozen Russian assets.
• Keep an eye on Nike’s China commentary and tariff impact as a read-through for global consumer brands’ 2026 guidance.