Wall Street Edges Higher as Delayed PCE Keeps Fed Cut Odds Elevated

U.S. equity benchmarks rose modestly on Dec. 5 as markets absorbed delayed economic releases including the Personal Consumption Expenditures inflation report and fresh consumer spending and sentiment data. The core PCE reading, the Federal Reserve's preferred inflation gauge, alongside consumer activity signals pointed toward cooling price pressures and improved household outlook, a development that sustained heavy market odds of a 25 basis point rate cut at the Fed meeting next week. Futures markets priced a high probability of that move.

The underlying economic picture, while not uniform, reinforced investor expectations that policy easing is imminent. Slowing core PCE suggests the pace of services inflation that has kept the Fed restrictive may be abating. At the same time, consumer spending and sentiment readings that showed resilience indicate demand has not collapsed under higher rates, allowing policymakers room to trim rates without an immediate threat of recession. That combination helps explain why stocks in domestically focused areas outperformed, and why smaller companies saw relative strength as traders increased exposure to firms more sensitive to U.S. financing costs.

Sector action was uneven. Communication services led gains, benefiting from the broader sentiment that cheaper credit could support advertising and subscription growth. Retail and consumer discretionary pockets moved higher as Ulta Beauty climbed after raising full year guidance, a corporate update that boosted confidence in consumer discretionary earnings ahead of the holiday quarter. By contrast, healthcare names were pressured after shifts in vaccine advisory guidance reduced expectations for near term revenue from certain product lines.

Media and entertainment stocks were volatile after reports that Netflix agreed to buy the studio and streaming assets of Warner Bros. Discovery. The deal reshuffles competitive dynamics in streaming and production, prompting investors to reassess valuations of both acquirers and targets. Warner Bros. Discovery shares moved on the news as traders weighed strategic synergies, regulatory hurdles, and the potential for further consolidation in a sector still chasing scale and profitability.

Market implications are clear. A 25 basis point cut would likely lower short term interest rates and put downward pressure on Treasury yields, supporting higher equity valuations particularly for rate sensitive sectors. It would also ease borrowing costs for companies and consumers, with potential boosts to housing and durable goods over coming quarters. Yet the benign market reaction also reflects a new risk landscape. Investors are pricing a soft landing scenario in which inflation cools without an economic contraction, an outcome that is far from guaranteed. Persistent services inflation, energy price shocks, or geopolitical disruptions could prompt a reassessment.

Longer term, the data reinforce a shift from the emergency era of rapid rate hikes to a calibration phase in which the Fed weighs gradual easing against upside inflation risks. For markets and policymakers alike, the next week will be pivotal in translating cooling inflation and steady consumer demand into an actionable path for monetary policy.