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US stocks surged to record highs on Friday after weaker-than-expected inflation data boosted expectations of a Federal Reserve rate cut next week. The S&P 500 gained 0.8%, the NASDAQ 100 advanced 1%, and the Dow Jones Industrial Average rose 0.8% by mid-morning in New York.
The September core consumer price index (CPI), excluding food and energy, increased 0.2% from August, the slowest monthly pace in three months, and 3% year over year. The data reinforced market confidence that the Fed will proceed with an interest rate cut at its upcoming meeting. Treasury yields were broadly steady, with the two-year yield at 3.47% and the 10-year at 3.99%, while the US dollar changed slightly.
Economists at Goldman Sachs and Morgan Stanley noted that the softer CPI data support the case for policy easing. Lindsay Rosner at Goldman Sachs Asset Management said the report “offered little to spook the Fed,” while Morgan Stanley’s Ellen Zentner added that “the central bank’s focus on risk management points to another rate cut next week.”
Investor sentiment improved as expectations for multiple rate cuts gained traction. Money markets are now pricing in two additional rate reductions before year-end, bringing borrowing costs closer to a neutral 3% level.
The Bloomberg Magnificent Seven Index added 0.5%, while the Russell 2000 Index jumped 1.3%, signaling renewed interest in smaller-cap stocks. In Europe, the Stoxx 600 index remained little changed, and the MSCI World Index rose 0.6%.
Corporate earnings added momentum to the rally. Intel Corp gained 3.3% after returning to profitability and issuing an upbeat revenue forecast, suggesting progress in its recovery efforts. Ford Motor Co. surged 9.3% following upbeat quarterly results and expectations of a full recovery from supply disruptions next year. Procter & Gamble also reported higher-than-expected sales as consumers absorbed modest price increases.
However, Deckers Outdoor Corp. dropped 14% after forecasting weaker 2026 revenue, reflecting pressure on consumer spending. In contrast, Palantir Technologies rose 2.8% after securing a $200 million deal for artificial intelligence software with Lumen Technologies.
The CPI report, delayed due to the federal government shutdown, provided the first major economic data in weeks. Analysts believe the figures reinforce the Fed’s case for a 25-basis-point rate cut next week and possibly another in December.
Ian Lyngen at BMO Capital Markets described the outlook as a “dovish cut” scenario. At the same time, JPMorgan’s Michael Feroli said Fed Chair Jerome Powell is likely to frame the move as a “risk management” decision rather than a shift in policy stance.
Market strategists expect the Fed to continue easing into 2025, citing a gradual decline in inflation and a cooling labor market. Florian Ielpo at Lombard Odier Asset Management said the data “confirms that inflation is fading, supporting further cuts into next year.”
Trade developments also influenced market sentiment. The White House announced that President Donald Trump will meet Chinese President Xi Jinping next week, a potential step toward easing tensions. Meanwhile, Treasury Secretary Scott Bessent met China’s Vice Premier He Lifeng in Malaysia to lay the groundwork for the talks.
Commodity markets reflected broader optimism. West Texas Intermediate crude rose 0.7% to $62.23 per barrel, while spot gold slipped 0.2% to $4,119.39 an ounce. In digital assets, Bitcoin increased 0.5% to $110,134.62, and Ether gained 1.9% to $3,903.15.
Analysts anticipate a busy week ahead, with major earnings reports from Alphabet, Meta Platforms, Microsoft, Apple, and Amazon. Investors will closely watch these releases for insight into how large corporations are navigating inflation, rates, and shifting consumer demand.
As inflation eases and expectations for monetary easing grow, Wall Street stays cautiously optimistic that the current rally can continue through the end of the year, helped by strong earnings and resilient consumer demand.
