U.S. Equities Rebound as Cooling Inflation Strengthens Fed Pivot Expectations

Cooling inflation has revived confidence in U.S. equities, with falling yields and strong AI-driven earnings supporting the rebound. The outlook remains positive but selective, favoring quality growth over broad market exposure.

Cooling Inflation Reignites Risk Appetite

On Thursday, U.S. equities rebounded sharply following the release of November CPI data, as cooler-than-expected inflation revived confidence in the near-term macro outlook and reignited risk appetite. Headline CPI slowed to 2.7% year over year and the core CPI to 2.6%, both well below consensus expectations, with monthly increases of just 0.2%. Despite concerns around data quality due to the government shutdown, markets focused on the broader signal: inflation pressures, particularly in services and shelter, continue to ease.

Risk-On Market Reaction Led by Technology and AI

The market reaction was decisively risk-on. The Nasdaq led gains as the AI complex recovered from earlier weakness, supported by strong Micron earnings and guidance that reinforced ongoing demand for AI-related memory and infrastructure. NVIDIA, Broadcom, and other AI beneficiaries rebounded alongside falling Treasury yields, with the 10-year drifting lower as rate-cut expectations moved forward. The S&P 500 reclaimed its 50-day moving average, easing recent technical pressure and stabilizing sentiment after several volatile sessions.

Federal Reserve Policy Outlook Shifts Toward Normalization

From a policy perspective, the CPI print strengthens the case that the Federal Reserve is approaching the next phase of normalization. While a January rate cut remains unlikely, markets are increasingly pricing in a higher probability of easing by March, reflecting a Fed that appears more focused on emerging labor-market softness than residual inflation risks. Crucially, this is not a recession-driven rate-cut narrative, but one centered on disinflation and insurance against downside growth risks, which is generally supportive for equity valuations.

Constructive Near-Term Outlook with Ongoing Macro Volatility

Looking ahead, the near-term outlook for U.S. equities remains constructive but measured. Inflation data that continues to trend lower should help anchor Treasury yields and stabilize valuation multiples, while earnings—particularly in AI-exposed segments—remain the key driver of performance differentiation. Macro-related volatility is likely to persist as markets debate the timing and pace of Fed easing and assess the reliability of recent data, but in the absence of a sharp deterioration in growth or financial conditions, pullbacks driven by sentiment rather than fundamentals are likely to attract buyers.

Quantel Asset Management’s View: Favor Quality Over Broad Beta

From Quantel Asset Management’s perspective, the November CPI report reinforces a favorable but selective market backdrop. We continue to see a supportive setup defined by slowing inflation, a Fed increasingly biased toward policy easing, and resilient earnings trends in structurally advantaged sectors such as AI infrastructure and high-quality growth. At the same time, elevated valuations argue for disciplined positioning and risk management rather than broad beta exposure. Overall, we maintain a cautiously positive stance on U.S. equities into the coming months, favoring fundamentally strong companies with durable cash flow visibility over short-term macro trading.