Tech Sector Bounces Back as Inflation Eases and Fed Rate Cut Expectations Rise

Market Rally Driven by Semiconductor Strength and Dovish Economic Data

Thursday’s trading session delivered a strong finish across major US equity benchmarks, with technology stocks leading the charge. The Nasdaq 100 Index surged +1.51%, while the S&P 500 Index advanced +0.79%, and the Dow Jones Industrials finished modestly higher at +0.14%. December futures contracts mirrored the bullish sentiment, with E-mini Nasdaq futures jumping +1.41% and E-mini S&P 500 futures climbing +0.74%.

The driving force behind the upbeat market performance was a sharp reversal in semiconductor stocks following Wednesday’s weakness. Micron Technology spearheaded the rebound with a gain exceeding +10%, bolstered by stronger-than-expected Q1 earnings of $13.64 billion versus the anticipated $12.95 billion consensus. The company’s optimistic forward guidance of $18.3 billion to $19.1 billion for Q2 revenue—substantially surpassing the $14.38 billion forecast—signaled robust demand and favorable supply-demand dynamics in memory chips. Fellow chipmakers also participated in the rally, with Sandisk, Western Digital, and Lam Research each gaining more than +6%, while Seagate Technology Holdings advanced more than +5%.

Economic Data Bolsters Case for Further Fed Easing

The market’s upbeat trajectory accelerated following the release of key economic indicators that pointed toward moderating inflation pressures. US weekly initial jobless claims fell to 224,000, slightly below the expected 225,000 level, suggesting a stable labor market. More importantly, November’s Consumer Price Index figures revealed a significant cooling in price growth. Core CPI rose just +2.6% year-over-year—weaker than the projected +3.0% and marking the slowest pace in 4.5 years. The headline CPI figure of +2.7% also disappointed expectations of +3.1%.

This dovish inflation backdrop has reshaped market expectations regarding future Federal Reserve policy. The probability of a 25 basis point rate cut at the January 27-28 FOMC meeting now stands at 27% according to market pricing. The benign inflation data also pressured long-term bond yields lower, with the 10-year Treasury note yield declining 3.9 basis points to 4.114% and touching a 1.5-week low of 4.10%.

Magnificent Seven Provides Broad Market Support

Beyond the semiconductor rally, the Magnificent Seven technology stocks delivered an across-the-board advance that helped sustain overall market momentum. Tesla finished higher by more than +3%, while Amazon and Meta Platforms each gained more than +2%. Alphabet, Nvidia, and Microsoft all posted gains exceeding +1%, though Apple’s advance was more modest at +0.13%.

Notable Individual Stock Movements

Several stocks generated outsized moves driven by corporate developments and analyst repositioning. Trump Media & Technology Group surged more than +44% following announcement of a proposed merger with TAE Technologies valued at over $6 billion. Rivian Automotive jumped more than +14% on an upgrade from Baird to outperform with a $25 price target. In the pharmaceutical space, Merck gained more than +1% after BMO Capital Markets raised its rating to outperform.

Conversely, biotech name Insmed declined more than -15% after disclosing that a mid-stage trial for an inflammation therapy failed to achieve its primary efficacy targets, leading to program discontinuation. Birkenstock fell more than -11% following underwhelming 2026 guidance. FactSet Research Systems dropped more than -7% as the S&P 500’s primary laggard after its full-year revenue forecast fell slightly below consensus expectations.

Global Markets Paint Mixed Picture

International equities showed divergent performance on Thursday. Europe’s Euro Stoxx 50 Index advanced +1.06%, while China’s Shanghai Composite inched upward by +0.16%. Japan’s Nikkei Stock 225, however, retreated to a 3-week low, closing down -1.03%.

Central banks on both sides of the Atlantic maintained their expected policy paths. The European Central Bank held its deposit facility rate at 2.00% while raising its 2025 Eurozone GDP growth forecast to 1.4% from 1.2% previously. The Bank of England, in a closely contested 5-4 vote, lowered its official bank rate by 25 basis points to 3.75%, signaling further gradual reductions ahead.

Looking Ahead

Market participants will continue monitoring US economic indicators this week. November existing home sales figures are projected to show a monthly increase of +1.2% to 4.15 million units, while the University of Michigan’s December consumer sentiment index revision is expected to edge up by +0.2 to 53.5.