Trending news
S&P 500 Hits All-Time High as September Inflation Cools to 3%, Below Expectations
The S&P 500 surged to fresh all-time highs on October 24, 2025, after September’s Consumer Price Index came in cooler than expected, reigniting hopes that the Federal Reserve will deliver two more rate cuts before year-end. The index climbed to 6,739 points, extending its October rally as traders celebrated inflation data showing headline CPI at 3.0% versus the 3.1% forecast.
Core CPI, which strips out volatile food and energy prices, showed a 0.2% monthly gain and 3.0% annual rate – both below the 0.3% and 3.1% estimates. This marks a significant victory for the Fed’s inflation-fighting campaign and provides ammunition for policymakers to continue easing monetary policy.
Why This Inflation Data Matters So Much
The September CPI report represents one of the few critical economic data releases available to investors during the ongoing government shutdown. With many government agencies closed and standard economic reports delayed, markets are fixated on any data that actually gets published.
Inflation coming in at 3.0% instead of 3.1% might seem like a trivial difference, but in today’s market environment, every tenth of a percentage point carries enormous weight. The Fed has made clear that returning inflation to its 2% target remains the priority, and today’s data shows continued progress toward that goal.
More importantly, the cooler-than-expected reading reinforces market expectations that the Federal Reserve will cut interest rates at its November meeting. Money markets now price in a high likelihood of two rate reductions before year-end, which would bring the federal funds rate down to approximately 3.75-4.00% from current levels.
Market Reaction: Relief Rally Extends
Wall Street saw a relief rally as the inflation data reinforced trader conviction the Federal Reserve will cut rates next week. Equities extended their October advance, with the S&P 500 hitting all-time highs on bets policy easing will keep fueling corporate earnings.
The major indices could see higher highs, especially with inflation cooler than expected. The S&P 500 rose 0.59% to 6,739 points, while the Dow Jones continued its march toward record territory.
Treasury yields remained relatively subdued despite the equity market euphoria. The 10-year Treasury yield dipped to six-month lows near 3.95%, well below its 200-day moving average and significantly lower than the late-2023 peak near 5%.
This bond market behavior reflects growing confidence that the Fed’s rate-cutting cycle has room to continue without reigniting inflation pressures. Lower yields reduce borrowing costs for businesses and consumers while making stocks more attractive relative to fixed-income alternatives.
What the Numbers Actually Show
Breaking down the September CPI data reveals why markets responded so positively:
Headline CPI came in at 3.0% year-over-year, down from the previous month and below the 3.1% estimate. This represents the lowest reading in months and demonstrates that inflationary pressures continue easing.
Core CPI held at 3.0% annually with a 0.2% monthly increase, both below expectations. Core inflation matters more to Fed policymakers because it excludes volatile components and better reflects underlying price trends.
The monthly core gain of 0.2% versus the 0.3% forecast is particularly significant. It suggests that the “stickiness” in services inflation that worried the Fed earlier in 2025 might finally be breaking.
Fed Rate Cuts Now Look Certain
Money markets continued to price in a high likelihood of two rate reductions before the year is over. This represents a significant shift from just weeks ago when some analysts questioned whether the Fed would cut at all given stubborn inflation.
The cooler CPI print removes a major obstacle to November rate cuts. Fed officials can now point to concrete evidence that their previous rate hikes are working and that inflation is moving sustainably toward the 2% target.
Investors should expect a 25 basis point cut at the November 6-7 FOMC meeting, with a strong possibility of another 25 basis point reduction in December. This would bring the federal funds rate to 3.75-4.00% heading into 2026.
Earnings Season Provides Additional Support
Beyond inflation data, strong corporate earnings continue supporting market optimism. About 12% of S&P 500 companies have reported third-quarter results, and roughly 85% have delivered positive earnings surprises.
Forecasts call for full-year 2025 earnings growth of about 10.5%, while 2026 earnings may accelerate to approximately 13%. This earnings momentum provides fundamental justification for stocks trading near all-time highs.
Importantly, earnings strength is expected to broaden beyond just technology and AI sectors in 2026. If realized, this would support a wider array of stocks rather than the narrow leadership that’s characterized much of 2025’s rally.
Technical Setup Looks Favorable
The technical outlook looks favorable for the S&P 500 in the near term, according to analysts. The index continues sitting right on top of the 20-day moving average around 6,690, which has kept the short-term uptrend intact.
The 50-day moving average at 6,588 has mitigated more serious downside, preventing the pullback that many hoped would provide better entry points. The index’s ability to hold these support levels while making new highs demonstrates underlying strength.
Some strategists anticipate a sharp rally to finish the month of October after an interesting period of sector rotation in recent weeks. Seasonal patterns favor stocks heading into November and December, historically the best two months of the year for equity returns.
What Could Derail This Rally
Despite today’s positive momentum, several risks could still derail the market’s advance:
Trade Tensions: Ongoing uncertainty around U.S.-China tariffs remains a wildcard. While President Trump and Chinese President Xi are scheduled to meet later this month in South Korea, any breakdown in negotiations could reignite market volatility.
Earnings Disappointments: While most companies are beating estimates, high-profile misses from Tesla, IBM, and Netflix have shown that not every company can maintain growth momentum. Further disappointments could shift sentiment quickly.
Government Shutdown: The ongoing federal shutdown creates economic uncertainty and could impact consumer and business confidence if prolonged. While markets have largely ignored the shutdown so far, extended disruption could eventually matter.
Inflation Reacceleration: Today’s benign CPI reading is encouraging, but inflation could tick higher in coming months. We’re in a tricky period where inflation might curl up just a little, creating uncertainty about the Fed’s rate path.
Investment Strategy in This Environment
For investors navigating current market conditions, several strategies make sense:
Stay Invested: Trying to time the market near all-time highs is difficult. History shows that markets often continue climbing after reaching new peaks, particularly when supported by Fed rate cuts and solid earnings.
Rebalance: If equity allocations have grown beyond strategic targets due to strong performance, consider trimming and rebalancing back to target weights. A 60/40 portfolio might now be 70/30 after the rally.
Focus on Quality: In an environment where not all earnings results are strong, focus on companies with solid fundamentals, pricing power, and resilient business models.
Maintain Diversification: While U.S. stocks are performing well, ensure adequate exposure to international markets, bonds, and alternative assets for portfolio balance.
The Bottom Line
The S&P 500’s surge to all-time highs on cooler-than-expected inflation data validates the bull case that Fed rate cuts will support continued equity market strength. With CPI at 3.0% versus 3.1% estimates and core inflation also below forecasts, the Fed has clear justification for November rate cuts.
Combined with strong corporate earnings showing 85% of reporters beating expectations, the fundamental backdrop supports current valuations despite stocks trading near record levels. The technical setup looks favorable heading into year-end’s traditionally strong seasonal period.
However, risks remain around trade tensions, potential earnings disappointments, and the government shutdown’s economic impact. Investors should maintain appropriate risk management while positioning for what could be a strong finish to 2025.
⚠️ Disclaimer
This article is for informational purposes only and does not constitute financial advice. Always conduct your own research or consult with a professional financial advisor before making investment decisions.