US stocks surged on Friday following the release of September’s Consumer Price Index (CPI) report, which showed inflation rising at a slower-than-expected pace. The Dow Jones Industrial Average jumped more than 350 points, while both the S&P 500 and Nasdaq Composite hit new all-time highs.
Investors responded positively to signs of cooling inflation ahead of next week’s anticipated Federal Reserve interest rate cut. The upbeat sentiment lifted major indexes across Wall Street, with the Dow climbing 0.8% in early trading. The S&P 500 added 0.8%, and the tech-heavy Nasdaq advanced 1.2%, both setting fresh intraday records.
Market optimism builds after softer CPI reading
Friday’s market rally came after weeks of heightened anticipation for the latest CPI figures, particularly amid a prolonged government shutdown that has disrupted the release of key economic data. The report from the Bureau of Labor Statistics revealed that inflation rose 0.3% month-on-month in September, slightly below the expected 0.4%. On an annual basis, headline CPI stood at 3%, compared to the forecasted 3.1%.
Core CPI, which excludes volatile food and energy prices, increased by 0.2% month-on-month and 3% year-on-year, also undershooting economists’ expectations of 0.3% and 3.1%, respectively. The softer readings reinforced investor confidence that inflation is moderating, bolstering bets that the Fed will move ahead with a rate cut.
According to the CME FedWatch Tool, markets are now pricing in a 98–99% probability of an interest rate cut at the Federal Reserve’s October meeting. Expectations for another 25-basis-point reduction in December 2025 have also risen, from 91% to 98.5%.
Fed policy and global factors support bullish momentum
Beyond monetary policy, market sentiment remains buoyed by optimism surrounding President Donald Trump’s upcoming meeting with China’s President Xi Jinping, with investors hopeful for progress on trade relations. Additionally, robust corporate earnings continue to provide a solid backdrop for equities, while risk-on appetite has extended into cryptocurrency markets, which are also seeing renewed momentum.
As Wall Street eyes further gains, Friday’s CPI report could mark another turning point in the Fed’s policy trajectory—and a key driver for the next leg of the stock market rally.
