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NEW YORK: Wall Street’s main indexes gained on Friday after a key inflation reading came in softer than expected, boosting recent investor optimism that the Federal Reserve could lower borrowing costs next year.

The personal consumption expenditures (PCE) price index, considered to be the Fed’s preferred inflation gauge, climbed 2.6% in November on an annual basis, compared with expectations of a 2.8% rise, per economists polled by Reuters.

The core inflation figure, which excludes volatile food and energy components, rose 3.2% on a yearly basis, compared with an estimated 3.3% rise.

“3.2% represents a victory for a Fed that remains keenly focused on restoring price stability without damaging a still healthy labor market, in essence balancing its two mandates,” said Quincy Krosby, chief global strategist for LPL Financial.

Analysts also said light trading volumes ahead of the Christmas break could also impact moves during the day.

Traders see an 85.5% chance of at least a 25 basis point (bps) rate cut in March next year, and expect borrowing costs to be lower by 125 bps in September 2024, according to the CME FedWatch Tool.

The S&P 500 and the Nasdaq finished over 1% higher on Thursday after data signaled third-quarter US economic growth was not as robust as originally stated, bringing the benchmark index within a whisker of its record closing high.

All three indexes are poised for their eighth-straight week in the green, with the S&P 500 set for its longest weekly winning streak since 2017, and the Nasdaq and the Dow since 2019.

The rally gained momentum last week after the central bank acknowledged that inflation was nearing the target rate, bringing interest rate cuts “into view”.

Meanwhile, Dow component Nike plunged 11.0% after the sports-wear maker trimmed its annual sales forecast blaming cautious consumer spending.

Shares of other sports-wear firms like Lululemon Athletica , Foot locker and Dick’s Sporting Goods dipped between 1.0% and 5.2%.

At 12:01 p.m. ET, the Dow Jones Industrial Average was up 47.51 points, or 0.13%, at 37,451.86, the S&P 500 was up 14.31 points, or 0.30%, at 4,761.06, and the Nasdaq Composite was up 48.19 points, or 0.32%, at 15,012.05.

Ten of 11 S&P 500’s sectors gained, led by a 0.9% advance in utilities, which is the worst performer this year, down over 10% year-to-date.

“When you look at the leadership and what’s been doing the best in this latest advance, it’s a lot of the heavily beaten down parts of the market this year,” said Kevin Gordon, senior investment strategist at Charles Schwab.

Among other movers, Occidental Petroleum added 1.0% after Warren Buffett-led Berkshire Hathaway raised its stake in the oil firm, bringing it closer to 28%.

Karuna Therapeutics soared 46.8% after Bristol Myers Squib agreed to buy the schizophrenia drugmaker for $14 billion in cash.

Markets will remain closed on Dec. 25 on account of the Christmas holiday.

Advancing issues outnumbered decliners by a 3.01-to-1 ratio on the NYSE and a 2.09-to-1 ratio on the Nasdaq.

The S&P index recorded 37 new 52-week highs and no new low, while the Nasdaq recorded 151 new highs and 46 new lows.

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