CPI Surprise Sparks Market Rebound After AI Selloff
Source: Connect Weekly | Week ending 20 December 2025
US markets rebounded this week after a cooler-than-expected CPI print eased inflation fears and reversed an AI-led selloff. Early concerns around AI credit risk, data-centre funding and delayed macro data weighed heavily on sentiment, but confidence returned as investors reassessed the outlook for rates, liquidity and AI monetisation heading into 2026. All three major indices finished the week higher, despite sharp mid-week volatility.
Why Markets Sold Off Earlier in the Week
The week opened cautiously, with investors de-risking ahead of delayed payrolls and inflation data. Concerns around AI financing dominated early trade, particularly after reports suggested uncertainty around funding for large-scale data-centre projects. Risk appetite faded as speculative assets sold off and positioning became more defensive.
Tuesday brought little relief. A backlog of labour-market data showed the US unemployment rate rising to 4.6% in November, its fourth consecutive monthly increase and the longest such streak since 2009. While the data pointed to a cooling jobs market, it failed to materially shift expectations for further rate cuts in 2026. The S&P 500 and Russell 2000 declined again, although the Nasdaq 100 staged a late-session recovery.
AI Credit Fears Peak Midweek
Selling intensified on Wednesday as worries around AI credit risk spread across markets. Reports that a major private-credit provider would not fund a large Oracle data-centre project triggered a broad selloff across the AI ecosystem. Every Magnificent Seven stock fell, pulling the S&P 500 down more than 1% and the Nasdaq 100 nearly 2%.
Sentiment was further dented by reports that China had completed a factory-scale EUV chip-fabrication prototype, raising fresh concerns about competitive pressure within the global semiconductor supply chain.
What the CPI Surprise Changed
Thursday marked a decisive turning point. Inflation data came in well below expectations, with core CPI falling to its lowest level since March 2021. The print reinforced confidence in the Federal Reserve’s recent easing and reignited optimism around further rate cuts in 2026.
Micron’s blowout earnings added fuel to the rally, sparking a sharp recovery across chips, data centres and AI-linked infrastructure names. All three major indices posted strong gains as investors leaned back into risk.
Risk Appetite Returns Into the Close
The rebound carried into Friday, with markets closing the week on a positive note. Optimism around AI monetisation resurfaced as Oracle rallied on news of a deal linked to TikTok’s US operations, while so-called neocloud names snapped back sharply.
Broader cyclicals also participated, helping the S&P 500, Nasdaq 100 and Russell 2000 finish the week in the green despite earlier losses.
What Investors Are Watching Into 2026
With inflation easing and risk appetite stabilising, markets head into year-end trading with renewed momentum. Attention now turns to whether AI funding concerns re-emerge in early 2026 and how quickly the Fed is willing to resume easing if labour-market softness persists.
After a week of sharp reversals, one theme remains clear: sentiment is fragile, but liquidity still rules and markets are becoming increasingly selective around delivery, cash flow and visibility.
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