Cooling Inflation Spurs Record-Breaking Rally on Wall Street

Recent signs of cooling inflation have ignited confidence among investors, sparking a historic rally on Wall Street. The September Consumer Price Index (CPI) report revealed a significant slowdown in inflation growth, bolstering market sentiment and driving all three major stock indices—Dow Jones Industrial Average, S&P 500, and Nasdaq Composite—to unprecedented closing highs.

Wall Street Reaches Unprecedented Highs

On October 24, the Dow Jones surged 1.01% (472.51 points), closing at 47,207.12. The S&P 500 climbed 0.79% (53.25 points) to end at 6,791.69, and the tech-heavy Nasdaq Composite soared 1.15% (263.07 points), reaching 23,204.87. All three indices achieved record peaks, underscoring the market's optimism about the economic landscape.

Core CPI Drives Optimism for Fed Rate Cuts

The rally was primarily propelled by newly released inflation data that fell below market expectations. The U.S. Department of Labor highlighted that September's CPI rose 0.3% month-over-month, and core CPI—which strips out volatile food and energy prices—recorded only a modest 0.2% uptick, its lowest monthly increase since June.

More encouragingly, core CPI’s deceleration aligned closely with the Federal Reserve’s annual inflation target. Housing costs, previously a major driver of inflation, saw their smallest monthly increase since January 2021, advancing just 0.2%.

This promising data triggered immediate recalibrations of rate expectations. The CME FedWatch Tool indicated a 92.2% likelihood of a 50-basis-point rate cut by December, while prediction markets like Kalshi forecast an 85% chance of two additional cuts before the year concludes.

According to Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management, "The Federal Reserve is well on its way to reducing rates further. With corporate earnings on an upward trajectory, there’s limited risk to the ongoing bull market."

Tech and Banking Stocks Propel Market Gains

The emerging optimism surrounding rate cuts fueled a surge in rate-sensitive technology and financial stocks. Industry giants Nvidia (+2.25%), Broadcom (+2.86%), and Alphabet (+2.7%) recorded notable gains, while leading banks such as JPMorgan Chase and Bank of America rose approximately 2%. Goldman Sachs had an exceptional showing, escalating over 4%.

Notably, IBM and AMD led the charge, each rising more than 7%, driven by news of their strategic partnership in the promising field of quantum computing—a sector attracting significant investor interest due to its potential to revolutionize industries.

On the downside, Tesla struggled, dropping 3.40% amid broader market gains.

Growth Supported by Strong Corporate Earnings

Investors found additional encouragement in robust third-quarter earnings reports. Many major companies exceeded earnings-per-share (EPS) expectations, further strengthening market optimism. Venhu Krishna, strategist at Barclays, commented, "Although the earnings season is still in its early stages, the rally suggests that investors are responding positively to strong corporate performance."

Even macroeconomic indicators showed promise. S&P Global’s October Manufacturing and Services Purchasing Managers’ Indexes (PMIs) outperformed projections, underscoring sustained economic resilience and expansion.

Volatility Shrinks as Confidence Climbs

The surge in market enthusiasm coincided with a sharp decline in the CBOE Volatility Index (VIX), often regarded as the "fear index," which fell by 5.38% to 16.37. This movement reflected growing confidence among investors that the Federal Reserve’s anticipated rate cuts will support continued bullish momentum.

Outlook: A Reinvigorated Wall Street

Cooling inflation data, combined with optimistic rate cut predictions and strong corporate earnings, has provided critical tailwinds to Wall Street. With diminished market jitters and renewed risk appetite, the trajectory suggests that investors are positioned to extend this historic rally further into the year. As inflation aligns closer to the Federal Reserve’s targets and economic indicators signal strength, the outlook for U.S. equities appears overwhelmingly positive—setting a promising stage for sustained growth in the months ahead.