US stocks climbed to new record highs on Friday after fresh data showed that inflation rose less than expected in September. The softer inflation figures boosted expectations that the Federal Reserve will announce a quarter-point interest rate cut at its meeting next week, adding momentum to a market rally that has been running for months.
The benchmark S&P 500 index rose 0.8%, with technology firms and major banks leading the charge. Meanwhile, the Nasdaq Composite gained 1.2%, driven by strong performances from artificial intelligence-related stocks. Gold prices also steadied after suffering their largest single-day drop since 2020 earlier in the week.
Fed Rate Cut Expectations Drive Optimism
According to analysts at JPMorgan, a rate cut now seems almost certain. “The case for expecting a cut next week is a simple one: Fed speakers, even some of the more hawkish ones, have done little to push back on the market’s firmly held view that a cut is coming,” they said.
Despite a lack of key economic data caused by the ongoing US government shutdown, investors appear undeterred. Markets have rebounded strongly since the mid-October sell-off that followed Donald Trump’s threat to impose “massive” tariffs on China.
Geopolitical Tensions Fail to Dent Market Mood
Tensions between Washington and Beijing remain in focus. The White House said it is investigating whether China has complied with a trade deal agreed upon during Trump’s first term. This came shortly after the former president said he had ended trade talks with Canada. Even so, markets shrugged off the developments, buoyed by news that Trump plans to meet Chinese President Xi Jinping during his upcoming trip to Asia.
AI Stocks and Earnings Season Fuel Gains
Investor confidence was further lifted by a strong start to corporate earnings season. “Sentiment is rosy. Stocks are at all-time highs,” said Mike Zigmont, co-head of trading at Visdom Investment Group. “If the US government shutdown concludes as well … we’ll be rocketing higher.”
FactSet data shows that S&P 500 companies are reporting “impressive numbers for revenues relative to analyst expectations and year-ago results.” Tech giants Alphabet, Meta, Microsoft, Apple and Amazon are all set to report next week, which could extend the rally further.
Retail Investors and Commodities in the Spotlight
While major indices climbed, volatility among certain stocks continued. Shares in plant-based food company Beyond Meat saw wild swings, surging over 600% early in the week before dropping 70% by Friday, driven largely by retail traders following a social media user known as capybaraReborn.
Elsewhere, Brent crude oil held steady at $65.91 a barrel after jumping earlier in the week when the US imposed sanctions on Russian oil majors Rosneft and Lukoil.
A Calm Before the Next Turn?
The current optimism in US markets reflects confidence in easing inflation and faith in an imminent rate cut. However, this rally also highlights a certain complacency. With geopolitical risks, government shutdown uncertainty, and overextended valuations in some sectors, investors may be overlooking potential volatility ahead.
As the Federal Reserve prepares for its next move, the coming weeks will test whether this bullish momentum can hold or if the market’s enthusiasm has run a little too far ahead of reality.
