Key Points
US inflation rate cooled more than expected in September, and Wall Street answered with fresh record highs across the Dow, S&P 500 and Nasdaq. The softer print reinforced expectations for a Federal Reserve rate cut at next week’s policy meeting, while the dollar and Treasury yields held steady.
Investors cheered the CPI report showing prices rose 0.3% month over month, a touch below the 0.4% consensus and down from August’s 0.4% gain. The moderation in the US inflation rate helped fuel a broad rally that sent all three major US stock indexes to record closing levels Friday.
By late afternoon, traders were leaning into the lower-inflation narrative and positioning for a quarter-point rate cut. According to rate futures tracked by LSEG, markets see the October 28–29 Fed meeting delivering another step down in policy rates, with odds favoring additional easing later this year if inflation continues to cool.
Stocks smash records as the CPI surprise hits
The major averages powered higher:
- Dow Jones Industrial Average: +472.51 points (+1.01%) to 47,207.12, a record close
- S&P 500: +53.25 points (+0.79%) to 6,791.69, a record close
- Nasdaq Composite: +263.07 points (+1.15%) to 23,204.87, a record close
The S&P 500 and Nasdaq notched their biggest weekly percentage gains since August, while the Dow posted its strongest Friday-to-Friday advance since June. Momentum was helped by upbeat earnings and a cooler US inflation rate, giving both growth and value names a lift.
Ford Motor surged 12.2% after beating third-quarter profit expectations, adding weight to the case that corporate America is navigating the macro backdrop with resilience. Analysts now expect S&P 500 earnings to grow about 10.4% year over year for Q3, up from roughly 8.8% seen at the start of the month, per LSEG.
What the latest US inflation rate means for the Fed
A 0.3% monthly CPI print offers the Fed cover to keep easing as long as broader conditions cooperate. While one month does not make a trend, a cooler US inflation rate reduces the urgency to keep policy tight.
Market implications if this path holds:
- A quarter-point cut next week is widely expected by futures markets
- Forward guidance may stress data dependence given mixed signals elsewhere
- Additional cuts this year remain on the table if inflation keeps drifting lower
Economists characterized the report as progress rather than victory. Inflation looks more controlled than at the peak in 2022, yet still requires vigilance. As one strategist noted, price growth appears manageable, which supports the Fed’s incremental approach to easing.
Earnings tailwinds set the stage for mega-cap tests
Beyond the US inflation rate, earnings are doing their part. Upbeat results helped broaden the tape, and the next big catalysts arrive when five of the so-called Magnificent Seven—including Apple and Microsoft—report next week. With megacaps sitting at the heart of 2024’s AI-powered rally, their guidance on demand, costs and capital spending will shape the market’s next move.
If profit growth holds near double digits and the US inflation rate continues to ease, the backdrop for risk assets remains constructive. Conversely, softer mega-cap outlooks could temper momentum even with a supportive Fed.
Bonds, dollar and commodities: a quick take
Rates and FX were calmer than equities:
- US Treasury 10-year yield: little changed to modestly higher at 4.00%, up about 1.2 bps on the day, down roughly 1 bp for the week—its fourth straight weekly decline
- Dollar index: down 0.02% to 98.92; euro up 0.1% to $1.1629; dollar up 0.14% to 152.8 against the yen
Oil eased after a strong prior session. US crude fell 29 cents to settle at $61.50 a barrel and Brent slipped 5 cents to $65.94. The pullback followed a 5% jump Thursday after US sanctions on major Russian oil companies, with some traders questioning how aggressively those sanctions will be enforced.
Spot gold dipped 0.57% to $4,101.29 an ounce as real yields steadied and risk appetite improved. Commodities overall reflected a day where the US inflation rate came in softer, risk assets rallied and haven flows cooled.
Global markets ride the wave
The US rally lifted sentiment worldwide. MSCI’s all-country world index rose 0.63% to 1,001.37 and touched an all-time high of 1,002.96. European equities joined the party, with the STOXX 600 up 0.23% to a record close. Cooling headline pressures in the US are supportive for global growth assets, even as regional dynamics vary.
In the euro area, business activity accelerated unexpectedly in October and government bond yields rose, hinting at a slightly hotter pulse. Still, the US inflation rate surprise helped keep a lid on global rate volatility into the weekend.
The CPI print in context
The US inflation rate has been on a bumpy glide path lower from its 2022 highs. A 0.3% monthly gain is a step in the right direction relative to August’s 0.4%. Investors also care about the composition beneath the headline—shelter, core services and goods—as these categories drive the Fed’s assessment of “sustainable” progress.
Why Friday’s figure mattered:
- It beat consensus by a narrow margin, enough to move rate expectations
- It reinforced that inflation is cooling without signaling a hard stop in growth
- It arrived ahead of a pivotal Fed meeting, shaping the policy narrative
Market reactions and what pros are saying
Portfolio managers framed the day as a validation of the disinflation trend, with an important caveat: the Fed still needs more evidence. Strategists pointed out that a steady, manageable US inflation rate is “good enough” for incremental easing, especially if labor markets remain balanced and earnings hold.
Currency traders shrugged off politics. The Canadian dollar was nearly flat after a social media post from President Donald Trump saying he would end all trade negotiations with Canada. The muted reaction underscored that macro drivers—namely the US inflation rate and Fed expectations—are commanding the spotlight.
What to watch into next week
Two narratives will dominate the tape:
- Fed policy: Rate futures imply a quarter-point cut at the October 28–29 meeting. The statement and press conference will be parsed for how officials frame the US inflation rate, labor markets and growth risks.
- Mega-cap earnings: Results from Apple, Microsoft and other AI leaders will test whether margins and cloud/AI demand can sustain market leadership.
Secondary catalysts:
- Treasury auctions and any fresh data on wages or spending that touch the US inflation rate
- Oil market headlines after sanctions news and Thursday’s price surge
- The path of the dollar and long-end yields, both of which influence equity multiples
The bottom line
A cooler US inflation rate unlocked a powerful end-of-week rally that pushed the Dow, S&P 500 and Nasdaq to fresh records. With a Fed cut in view and earnings trends improving, the market’s base case is constructive. Still, the durability of this move rests on two pillars: continued progress on the US inflation rate and steady corporate profit growth.
If both persist, dips may remain shallow and sector leadership broadens beyond megacaps. If either wobbles, volatility likely returns. For now, investors head into a pivotal week with momentum on their side and the policy backdrop slowly turning more supportive.
FAQ’s
What is the latest US inflation rate and what did the CPI report show this month?
The latest US inflation rate eased as CPI rose 0.3% month over month in September, below the 0.4% forecast and down from August’s 0.4%. The cooler US inflation rate supports the view that price pressures are moderating, though the Federal Reserve will look at broader trends before changing policy.
Will the Fed cut interest rates next week because the US inflation rate cooled?
Futures tracked by LSEG suggest traders expect a quarter-point cut at the October 28–29 meeting. The US inflation rate is a key input, but the Fed also weighs jobs, spending, credit conditions and financial stability, so the decision is not guaranteed and depends on the full data picture.
How does the US inflation rate affect stocks, bonds and mortgage rates?
A lower US inflation rate often eases pressure on Treasury yields, which can support stock valuations and reduce borrowing costs. Mortgage rates tend to move with the 10-year Treasury yield, so cooling inflation can help homebuyers. Markets also react to growth, earnings and policy signals, so moves can vary day to day.
Article Source: Reuters
