Stock Markets Climb as Inflation Cooldown Cuts Fed Hike Odds

The S&P 500 Index ($SPX) (SPY) rose 0.63%, the Dow Jones Industrial Average ($DOWI) (DIA) gained 0.15%, and the Nasdaq 100 Index ($IUXX) (QQQ) advanced 0.75%. December E-mini S&P futures (ESZ26) climbed 0.55%, and December E-mini Nasdaq futures (NQZ26) rose 0.72%.

Stock indices rallied as inflation fears subsided following a downward revision to the Q2 core PCE price index and a milder-than-expected August core PCE reading. The improved inflation outlook slashed the probability of a Fed rate hike next month to 35%, down from 52% on Tuesday. Broad economic strength also bolstered sentiment, with Q2 GDP revised higher, the September ADP employment report beating estimates, and August personal spending posting its largest monthly gain in five months. The S&P 500 extended its advance after the September MNI Chicago PMI registered its strongest expansion in four months.

Investors are watching Micron Technology’s after-market earnings report for cues on AI demand.

US MBA mortgage applications declined 6.0% for the week ended September 25, with the purchase sub-index down 4.3% and refinancing down 8.7%. The average 30-year fixed-rate mortgage increased 18 basis points to a 2.75-year high of 7.30%, up from 7.12% the prior week.

The September ADP employment change came in at +90,000, above the expected +75,000. August personal spending rose 0.9% month-over-month, in line with forecasts and the strongest in five months, while August personal income grew 0.2% m/m versus an expected 0.5%.

The August core PCE price index, the Fed’s preferred inflation gauge, rose 0.2% m/m and 3.0% y/y, below expectations of 0.3% m/m and 3.3% y/y. Q2 GDP was revised up to 2.2% q/q annualized from 1.5%, as personal consumption was raised to 3.8% from 3.4%. The Q2 core PCE was revised down to 3.3% from 3.6%.

The September MNI Chicago PMI jumped to 58.8, well above the expected 51.0. Positive data from China also supported global sentiment, with the September manufacturing PMI at 50.1 and non-manufacturing PMI at 50.2, both meeting or exceeding forecasts.

Nov WTI crude oil (CLX26) gained over 2% after Russia extended its diesel export ban through October. Gains were capped as JPMorgan noted Middle East crude exports have recovered to 17.5 million bpd, roughly 98% of pre-war levels, though refined product flows remain at just 58% of pre-war volumes.

Markets are pricing in a 35% chance of a 25 bp Fed rate hike at the October 27–28 FOMC meeting.

Overseas markets were mixed: the Euro Stoxx 50 fell 0.36%, Shanghai Composite rose 0.318%, and Japan’s Nikkei-225 gained 1.94%.

Interest Rates

December 10-year T-notes (ZNZ6) lost 3 ticks, with the yield up 1.3 bp to 5.268%. T-notes surrendered an early advance on stronger-than-expected US data, including Q2 GDP, the ADP report, and the Chicago PMI. Rising crude prices are also fueling inflation expectations and pressuring Treasury prices, with the 10-year breakeven inflation rate hitting a two-week high of 2.365%. Earlier support came from easing inflation concerns and month- and quarter-end portfolio rebalancing by bond managers.

European government bond yields were mixed: the 10-year German bund yield dropped 4.9 bp to 3.577%, while the 10-year UK gilt yield rose 0.5 bp to 5.415%. German September unemployment rose by 12,000 against an expected decline of 500. German August retail sales grew 1.3% m/m, the largest in 14 months but shy of the 1.5% forecast. German September CPI (EU harmonized) rose 0.6% m/m and 3.3% y/y, the strongest annual gain in 2.75 years. UK Q2 GDP was revised up to 0.5% q/q and 1.4% y/y. Markets are discounting a 28% chance of a 25 bp ECB rate hike at the October 29 meeting.

US Stock Movers

Software stocks led the advance, with Atlassian (TEAM) and Salesforce (CRM) each up over 3%, alongside Datadog (DDOG), Adobe (ADBE), Autodesk (ADSK), and Intuit (INTU), all above 2%. Microsoft (MSFT), Palantir (PLTR), ServiceNow (NOW), and Cadence (CDNS) also rose over 1%. Cybersecurity names strengthened, with Gen Digital (GEN) up more than 6%, Okta (OKTA) and Palo Alto Networks (PANW) above 3%, and Fortinet (FTNT), SentinelOne (S), CrowdStrike (CRWD), and Zscaler (ZS) in positive territory.

Hewlett Packard Enterprise (HPE) surged over 7% after raising its fiscal 2027 networking revenue outlook. Huntington Ingalls (HII) gained over 2% on a $5.1 billion Navy contract for the USS Harry S. Truman overhaul. Target (TGT) rose over 1% after HSBC upgraded it to buy with a $190 price target.

Moderna (MRNA) dropped more than 7% after Citigroup downgraded it to sell with an $80 price target. Cal-Maine Foods (CALM) fell over 3% on Q1 sales of $539.6 million versus $552.2 million expected. Northrop Grumman (NOC) lost over 3% after losing the $20 billion Navy next-generation fighter contract to Boeing.

Earnings Reports (9/30/2026)

Cal-Maine Foods (CALM), Conagra Brands (CAG), FactSet Research (FDS), Jabil (JBL), Micron Technology (MU), Progress Software (PRGS).

Source link