Wall Street woke up to a rare combination on Thursday, December 18, 2025: a cooler-than-expected U.S. inflation print, a steady labor-market signal, and a fresh burst of optimism from a bellwether AI-linked chipmaker—after a bruising tech-led selloff the day before.
The result was a fast shift in market mood. U.S. stock index futures climbed, Treasury yields edged lower, and investors began recalibrating what “higher for longer” could mean heading into 2026—while also grappling with a major caveat: the November inflation report was released under unusual circumstances following a federal government shutdown that disrupted October data collection. [1]
What happened in markets before the CPI release—and why Thursday mattered
Wednesday’s session (December 17) set the stage. U.S. stocks closed sharply lower as renewed “AI trade” jitters hit mega-cap tech and semiconductors, sending the S&P 500 and Nasdaq to three-week lows. The S&P 500 fell 1.16% to 6,721.43, the Nasdaq dropped 1.81% to 22,693.32, and the Dow slid 0.47% to 47,885.97, according to Reuters. [2]
Those declines were tied to investor anxiety about the scale and financing of AI-related capital spending (capex), with notable weakness in chip names and tech leaders. [3]
Thursday’s macro data then arrived as the next major catalyst—and it hit at the exact moment markets were looking for a reason to stabilize.
November CPI: The headline inflation rate slowed to 2.7%—but the report comes with a big asterisk
The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI-U) rose 2.7% over the 12 months ending November 2025 (not seasonally adjusted). The “core” CPI—all items less food and energy—increased 2.6% over the same 12-month period. [4]
The complication: BLS did not collect survey data for October 2025 due to a lapse in appropriations, and it cannot retroactively collect those missing survey observations. CPI collection resumed on November 14, 2025, and that gap changes how the month-to-month story can be told. [5]
The “two-month change” is doing the work this time
Because October CPI data are missing, BLS reported that CPI-U increased 0.2% on a seasonally adjusted basis over the two months from September 2025 to November 2025. Core CPI also rose 0.2% over that same two-month period. [6]
Economists and market analysts have urged readers to focus more heavily on year-over-year inflation or the two-month change—not a standard one-month move—because the usual October-to-November comparison isn’t available across many categories. [7]
What drove inflation in November: Shelter eased, while energy stayed hot
Even with the unusual data backdrop, the BLS breakdown highlights where price pressures are still concentrated—and where they are fading.
Key 12-month CPI moves (selected categories)
From the BLS CPI category table for November 2025:
- Shelter: +3.0%
- All items less food and energy (core): +2.6%
- Food: +2.6% (Food at home: +1.9%; Food away from home: +3.7%)
- Energy: +4.2% (Energy services: +7.4%)
- Gasoline: +0.9%
- Fuel oil: +11.3%
- Electricity: +6.9%
- Used cars and trucks: +3.6%
- Airline fare: -5.4% [8]
The takeaway many investors are drawing: shelter inflation is no longer the runaway driver it once was, while energy-related costs remain a source of volatility—a combination that can meaningfully influence rate expectations.
The market’s immediate reaction: Futures rise and yields slip as rate-cut expectations revive
After the CPI report, U.S. stock index futures climbed, reflecting a quick “risk-on” response:
- Dow E-mini futures: +181 points (+0.38%)
- S&P 500 E-mini futures: +41.25 points (+0.61%)
- Nasdaq 100 E-mini futures: +268.5 points (+1.09%) [9]
At the same time, Treasury yields eased. Multiple market reports put the 10-year Treasury yield around 4.12% after the inflation data, reflecting growing confidence that the disinflation trend—however noisy—could keep the Fed leaning toward easier policy in 2026. [10]
Why investors still aren’t treating this CPI print as “mission accomplished”
The “cool CPI” headline is powerful. But in the fine print, analysts see reasons to be cautious.
Reuters noted that part of the moderation may be technical, tied to the timing of data collection during the holiday season—when discounting can intensify later in November. The same reporting also emphasized the continuing strain of prices on households, especially with tariffs influencing costs for some imported goods. [11]
The BLS itself flagged the shutdown effects explicitly: survey price data for October weren’t collected, couldn’t be recovered later, and only some non-survey data were obtained retroactively. [12]
In other words: markets may trade the number, but policymakers—and careful investors—are likely to demand confirmation in the next releases.
Fed policy context: Rates are lower now, but the next steps are up for debate
Just last week, on December 10, the Federal Reserve cut its benchmark rate by 25 basis points to a target range of 3.50% to 3.75%. In its statement, the Fed said inflation “remains somewhat elevated,” and emphasized it will assess incoming data and the evolving outlook when considering further adjustments. [13]
That backdrop makes the December 18 CPI report especially market-moving: investors are constantly trying to answer one question—is the next cut coming soon, or is the Fed done for a while?
Some market coverage on Thursday indicated investors were revisiting the odds of a cut by spring 2026; however, those implied probabilities can move quickly as new data hits. [14]
Jobless claims: A steady labor signal (224,000) reinforces the “soft landing” narrative—for now
Inflation wasn’t the only macro headline Thursday. The Labor Department reported:
- Initial jobless claims: 224,000 for the week ended December 13 (down 13,000), roughly in line with expectations
- Continuing claims: 1.897 million for the week ending December 6 (up 67,000) [15]
Reuters characterized recent claims as “see-sawing” due to seasonal adjustment challenges around Thanksgiving, and described the labor market as stable—employers aren’t hiring aggressively, but they also aren’t conducting widespread layoffs. [16]
That matters for markets because the Fed’s path depends on both sides of the mandate: inflation cooling without the labor market cracking is the scenario that supports a gradual, controlled easing cycle.
Philadelphia Fed index: Manufacturing looks weak even as markets cheer inflation
While CPI and jobless claims supported risk appetite, a key regional factory indicator pointed the other way.
The Philadelphia Fed’s December Manufacturing Business Outlook Survey showed:
- Current general activity index: -10.2 (down 9 points), negative for the third straight month
- New orders: turned positive (index at 5.0)
- Shipments: turned positive (index at 3.2)
- Employment index: rose to 12.9, the highest since May [17]
The mixed message is typical late-cycle economics: pockets of weakness in goods-producing sectors alongside resilience elsewhere. For investors, it’s another reminder that a single CPI report doesn’t tell the whole growth story.
Micron’s earnings spotlight: AI-demand optimism returns to the tape
Beyond macro data, one company stood out as a sentiment driver: Micron Technology.
Reuters reported Micron shares surged in premarket trading after a stronger-than-expected profit outlook, driven by soaring prices and tight supply in high-bandwidth memory (HBM)—a crucial component in AI servers. The company has been riding powerful demand from the generative AI buildout and data center expansion. [18]
Barron’s reported Micron posted adjusted earnings per share of $4.78 on revenue of about $13.6 billion, both ahead of expectations, and issued notably stronger forward revenue guidance. [19]
Micron’s surge mattered beyond one ticker. After Wednesday’s tech selloff, a strong AI-linked earnings signal helped markets tell a different story: not “AI spending fatigue,” but “AI demand is still real—if supply is the constraint.”
The bigger picture for investors: Inflation is easing, but uncertainty remains elevated
Thursday’s headlines can be read in two ways at once:
- Optimistic read: Inflation is cooling faster than expected, labor markets are holding up, and the Fed could have room to cut again if the trend holds. [20]
- Cautious read: Data distortions from the shutdown and seasonal timing could be muting inflation temporarily—meaning investors may be overreacting to a print that needs confirmation. [21]
This tension—between relief and realism—is exactly what makes the December 18 CPI report a high-impact moment for markets.
What to watch next: The dates and catalysts that could move markets
A few forward-looking markers are already on investors’ calendars:
- Next CPI release (December 2025 data): January 13, 2026 at 8:30 a.m. ET, per the BLS schedule. [22]
- Watch whether the shutdown-related distortions fade and whether “core” inflation stays near the mid-2% range. [23]
- Watch how quickly tariff-related price pressures show up in broader categories—especially if goods inflation bleeds into services. [24]
For now, December 18 delivered exactly what markets craved after a tech-driven stumble: a data point suggesting inflation pressure is loosening—plus a reminder that the AI economy still has earnings power behind it. The next question is whether the upcoming data will confirm this calmer trajectory—or force investors and the Fed to rethink it again.
References
1. www.reuters.com, 2. www.reuters.com, 3. www.reuters.com, 4. www.bls.gov, 5. www.bls.gov, 6. www.bls.gov, 7. www.reuters.com, 8. www.bls.gov, 9. www.reuters.com, 10. www.coindesk.com, 11. www.reuters.com, 12. www.bls.gov, 13. www.federalreserve.gov, 14. www.investors.com, 15. www.reuters.com, 16. www.reuters.com, 17. www.philadelphiafed.org, 18. www.reuters.com, 19. www.barrons.com, 20. www.reuters.com, 21. www.bls.gov, 22. www.bls.gov, 23. www.bls.gov, 24. www.reuters.com
