December 18, 2025: Cooler-Than-Expected CPI Report Sparks Market Rally Amid Economist Caution

On December 18, 2025, the U.S. Bureau of Labor Statistics released a delayed November 2025 CPI report indicating cooler-than-expected inflation—2.7% year-over-year (YoY) for all items (vs. 3.1% estimate) and 2.6% YoY for core CPI (excluding food/energy, vs. 3.0% estimate) [2]. This data triggered a market rally, ending four-day losing streaks for the S&P 500 (+0.8% to 6,774.76) and Dow (+0.1% to 47,951.85), while the Nasdaq surged 1.4% to 23,006.36, buoyed by both the inflation news and Micron Technology’s positive outlook [2][3][4].

Economists expressed caution due to spotty data collection during the recent government shutdown that delayed the report, raising concerns about its reliability [2][3]. Market sectors reacted unevenly: Utilities led gains (+1.49%) on lower interest rate expectations boosting dividend appeal, Technology rose 1.02% driven by Micron’s outlook, and Energy lagged (-1.63%) due to concerns about limited price increases from cooler inflation [0].

1. Short-Term Sentiment Shift
   : The CPI report reversed recent market declines driven by AI spending bubble fears and data uncertainty, but economist caution prevented over-optimism [3].
2. Rate Cut Expectations
   : Cooler inflation fueled expectations of 2026 Fed rate cuts, which could reduce borrowing costs and support economic growth, though the impact depends on future inflation confirmation [2][4].
3. Sector Rotation
   : Defensive sectors (Utilities) and growth sectors (Technology) outperformed, reflecting investor positioning for both rate sensitivity and tech fundamentals.

• Data Distortion
  : The CPI report’s credibility is compromised by government shutdown-related data collection issues, risking overreaction to potentially distorted numbers [2][3].
• Volatility Reversal
  : If subsequent inflation reports contradict November’s data, markets could reverse December 18 gains.
• Fed Policy Uncertainty
  : The Fed may delay rate cuts until receiving more reliable inflation data.

• Rate-Sensitive Sectors
  : Lower rate expectations could benefit dividend-paying stocks and growth sectors dependent on borrowing.
• Tech Momentum
  : Micron’s positive outlook could continue supporting the tech sector, alongside reduced rate hike concerns.

The December 18 market rally was driven by cooler-than-expected inflation data, though data reliability concerns temper the outlook. Decision-makers should monitor the upcoming December 2025 CPI report (Jan 13, 2026) for trend confirmation, Fed communications on policy, and Micron/tech sector performance to assess the sustainability of the rally [2][4].